Nada Pacific Corporation v. Power Engineering and Manufacturing, Ltd., et al

Filing 102

ORDER GRANTING #71 BESSER'S MOTION FOR SUMMARY JUDGMENT. Signed by Judge Laurel Beeler on 11/10/2014. (lblc2, COURT STAFF) (Filed on 11/10/2014)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

Northern District of California

10

San Francisco Division
NADA PACIFIC CORP.,

12
For the Northern District of California

UNITED STATES DISTRICT COURT

11

No. C 13-04325 LB

Plaintiff,

ORDER GRANTING BESSER’S
MOTION FOR SUMMARY
JUDGMENT

v.
13
POWER ENG’G AND MFG., LTD., et al.,
14

[Re: ECF No. 71]
Defendants.

15
16

AND RELATED COUNTER- AND CROSSCLAIMS

17

_____________________________________/

18

INTRODUCTION

19

In this action, several entities sued each other after a microtunnel boring machine broke down

20

while it was boring an underground tunnel on a construction project for the San Francisco Public

21

Utilities Commission (“SFPUC”). Plaintiff Nada Pacific Corporation (“Nada”) leased and operated

22

the machine as a subcontractor for the project’s general contractor, and Defendant/counter-defendant

23

Besser Company (“Besser”) manufactured a component in the machine. Besser moves for summary

24

judgment against Nada on three grounds: (1) Nada is judicially estopped from arguing that Besser’s

25

allegedly defective component caused the boring machine to fail because Nada argued before a

26

dispute resolution board established by its general contractor’s contract with the SFPUC that site

27

conditions caused the machine to fail; (2) alternatively, Nada cannot use the collateral source rule to

28

obtain a duplicate recovery of the amounts it recovered from its general contractor for the same

C 13-04325 LB
ORDER

1

damages it seeks in this case; and (3) alternatively, Nada has put forth evidence of only its economic

2

losses and thus the economic loss rule bars its tort claims. Upon consideration of the parties’ papers

3

and their arguments at the November 6, 2014 hearing, the court holds that (1) judicial estoppel does

4

not apply because the dispute resolution board did not decide the dispute, (2) Nada’s potential

5

recovery is offset by the money it recovered from its general contractor, and the collateral source

6

rule does not apply, and (3) the economic loss rule bars Nada’s tort claims against Besser. The court

7

thus GRANTS Besser’s motion.

8
9
10

STATEMENT
I. THE PARTIES AND THE PROJECT
This case arises out of the September 2010 failure of a microtunnel boring machine (“MTBM”)
while it was boring an underground tunnel on a construction project referred to as the San Francisco

12
For the Northern District of California

UNITED STATES DISTRICT COURT

11

Public Utilities Commission-Alameda Siphon Project No. 4, in Alameda County, California (the

13

“Project”). Joint Statement of Undisputed Facts (“JSUF”), ECF No. 71-2 at 2.1 The owner of the

14

Project was the SFPUC, and the general contractor on the Project was Steven P. Rados, Inc.

15

(“Rados”). Id. Nada, a licensed general engineering contractor specializing in microtunnelling

16

construction projects, acted as a microtunneling subcontractor to Rados on the Project. Id.

17

To perform its work as a tunneling subcontractor on the Project, Nada leased an MTBM from

18

third-party defendant, Akkerman, Inc. (“Akkerman”). Id. Because the leased MTBM had a 74”

19

diameter and the Project required a 96” diameter, Nada separately leased an “increase kit” from

20

non-party Walter C. Smith Co., Inc. to enlarge the diameter of the face of the MTBM to the required

21

project dimensions. Id. at 2-3. Nada also installed on the leased MTBM a “cutter head” that Nada

22

owned. Id. at 3. The cutter head is the front-most piece of an MTBM, which rotates to bore through

23

the ground. Id.

24

The leased MTBM contained a planetary gearbox designed and manufactured by defendant and

25

cross-claimant Power Engineering and Manufacturing, Ltd. (“PEM”). Id. The PEM gearbox

26

contained a cast iron planetary carrier manufactured by Besser, which Besser sold to PEM for

27
28

1

Citations are to the Electronic Case File with pin cites to the electronically generated page
numbers at the top of the page.
C 13-04325 LB
ORDER

2

1

$952.00, plus a $25 pallet and box charge, in September 2008. Id.

2

II. THE MTBM’S IMMOBILAZATION, RESCUE, AND INVESTIGATION

3

In September of 2010, while Nada was operating the MTBM to bore a tunnel on the Project, the

4

MTBM became immobilized underground. Id. The immobilization occurred roughly 254 feet into

5

tunnel bore, and 12 lengths of 20-foot interconnected steel casing pipe had been installed behind the

6

MTBM when it became immobilized. Id. With Nada unable to advance the MTBM forward or

7

move it backwards because of the pipe sections that had been installed behind the MTBM, a rescue

8

shaft (or “911 shaft”) was constructed above the MTBM to expose it and then raise it out of the

9

ground with a crane. Id. at 3-4.

10

After the MTBM was removed from the ground, it was sent to Nada’s facility in Caruthers,
California for examination and repair. Id. at 4. Upon examination, Nada discovered that the

12
For the Northern District of California

UNITED STATES DISTRICT COURT

11

gearbox within the MTBM was cracked. Id. Nada subsequently obtained a replacement gearbox,

13

performed other repairs to the MTBM, returned the MTBM to the site, lowered it into the tunnel

14

bore alignment, restored the earthen cover removed to create the 911 shaft, and re-launched the

15

MTBM on the Project, which Nada was then able to complete. Id.

16

The failed gearbox was sent to PEM’s facility where a non-destructive inspection was performed

17

on or about November 16, 2010. Id. The Besser-manufactured planetary carrier within the gearbox

18

then was sent to the University of Northern Iowa (“UNI”) in Cedar Falls, Iowa, where it underwent

19

destructive testing on or about February 28, 2011 at PEM’s request. Id. Based on that destructive

20

testing, UNI prepared a report dated March 31, 2011. Id. Structural Integrity Associates, Inc. then

21

prepared a report dated April 12, 2011, which analyzed the UNI report. Id. Both reports were

22

available to Nada prior to the Dispute Review Board proceeding discussed below. Id.

23

III. NADA’S REQUEST FOR CHANGE ORDER

24

In connection with the costs Nada incurred to rescue and repair the immobilized MTBM, Nada

25

submitted a Request for Change Order to Rados on September 6, 2011 and Rados passed that

26

Request for Change on to the SFPUC. Id. Nada’s Request for Change sought compensation for

27

additional costs as follows:

28

C 13-04325 LB
ORDER

3

1
2
3
4
5
6
7
8
9
Id. at 5.

11

IV. THE DISPUTE REVIEW BOARD PROCEEDINGS

12
For the Northern District of California

UNITED STATES DISTRICT COURT

10

After the SFPUC refused to execute a change order on Nada’s Request for Change, the SFPUC,

13

Rados, and Nada, in accordance with the prime contract between the SFPUC and Rados, submitted

14

the dispute to a Dispute Review Board (“DRB”). Id. The DRB, which was established by the prime

15

contract between the SFPUC and Rados and whose purpose was “to assist the parties by facilitating

16

the timely resolution of disputes relating to” work on the Project, consisted of one member selected

17

by the SFPUC, one member selected by Rados, and a third member selected by the other two

18

members. Id., Ex. G (“DRB Specification”), ECF No. 71-9 ¶¶ 1.1, 2.3. Each DRB member was

19

required to hold a certification or pre-qualification from the Dispute Resolution Board Foundation or

20

the American Arbitration Association evidencing that the member received training the DRB

21

process and meets the requirements for DRB members. Id. ¶ 3.2.

22

The DRB review process proceeds as follows. Either party to the prime contract could initiate

23

the DRB’s review of a dispute. Id. ¶ 7.2. The DRB then sets deadlines for the parties to provide

24

pre-hearing submittals, which are position papers supported by evidence, and for a hearing. Id. ¶

25

7.3, 7.4. The pre-hearing submittal contains a brief statement of the dispute, a summary of the

26

party’s position and the basis and justification for that position (with reference to contractual

27

language and other evidence), and cost details. Id. ¶ 7.4.

28

The DRB then conducts a formal hearing that is attended by the parties. Id. ¶ 2.2. Attorneys are

C 13-04325 LB
ORDER

4

1

not allowed to attend the DRB hearing without prior written approval, and if they are granted such

2

approved, they may only observe. Id. ¶ 8.4. The party who referred the dispute to the DRB presents

3

its position first, followed by the other party. Id. ¶ 8.5. Both parties are then allowed successive

4

rebuttals until the DRB believes that all aspects of the dispute have been fully and fairly covered.

5

Id. The DRB members may ask questions, request clarification, or ask for additional information.

6

Id. Either party may request that the DRB direct a question to, or request a clarification from, the

7

other party, although the DRB will not allow one party to be directly questioned by the other party.

8

Id. The DRB, in its sole discretion, may allow the introduction of arguments, exhibits, handouts, or

9

documentary evidence that were not included in a party’s pre-hearing submittal or were not

review the new material and prepare a rebuttal. Id. With prior disclosure, a party may also offer an

12
For the Northern District of California

previously given to the other party. Id. In the latter circumstance, the other party is given time to

11
UNITED STATES DISTRICT COURT

10

analysis of an outside expert. Id. ¶¶ 8.8, 8.9. In difficult or complex cases, the DRB may find an

13

additional hearing to be necessary. Id. at ¶ 8.5.

14

After the formal hearing, the DRB issues a nonbinding, written recommendation (the “DRB

15

Report”), which is admissible in subsequent litigation or other dispute resolution proceedings. Id. ¶

16

2.5. The recommendation in the DRB Report is based on the pertinent contractual provisions,

17

applicable laws and regulations, and facts and circumstances of the dispute. Id. ¶ 9.1. It includes an

18

explanation of the DRB’s reasoning in reaching the recommendation. Id. The recommendation

19

must be consistent with the application provisions of the prime contract between the SFPUC and

20

Rados. Id. Within 10 days of receiving the DRB Report, either party may request clarification or

21

reconsideration. Id. ¶¶ 9.5, 9.6. Within 30 days of receiving the DRB Report, the parties must

22

submit their written acceptance or rejection of the recommendation contains within it. Id. ¶ 9.7. In

23

the event that the DRB process does not result in a resolution of the dispute, Rados must comply

24

with the certified claim requirements set forth in the prime contract and with the San Francisco

25

Administrative Code and other applicable laws. Id. ¶ 10.1.

26

In accordance with the procedures outlined above, the parties submitted a factual record of

27

“Common Reference Documents” relevant to the Project and the MTBM’s immobilization. JSUF,

28

ECF No. 71-2 at 5. On November 14, 2011, Nada submitted a Pre-Hearing Submittal to the DRB,

C 13-04325 LB
ORDER

5

1

executed by Nada’s president, Cal Terassas, explaining Nada’s position as to the cause of the

2

MTBM’s immobilization (essentially, site conditions). Id. Nada also provided an Appendix of

3

separate documents to the DRB. Id. Among other analyses and reports provided in the Appendix,

4

Nada provided the DRB with expert reports authored by David Mathy and David Bennett, “two very

5

respected industry professionals who devote their careers to geotechnical issues and most

6

substantively to microtunnelling.” Id. Nada also created PowerPoint presentations that it submitted

7

to the DRB on November 28, 2011 and in rebuttal on December 1, 2011, after the DRB’s hearing.

8

Id. at 6.

9

The DRB conducted a hearing on November 29, 2011 and issued its recommendation on January

costs requested in Nada’s Request for Change. Id.

12
For the Northern District of California

6, 2012. Id. The DRB’s decision made recommendations concerning Nada’s entitlement to the

11
UNITED STATES DISTRICT COURT

10

V. THE SETTLEMENT OF THE CHANGE ORDER DISPUTE

13

As a result of the DRB’s January 6, 2012 recommendation, the SFPUC agreed to pay Rados the

14

sum of $850,000. JSUF, ECF No. 71-2 at 6. Rados then agreed to pay Nada $481,755.49 ($850,000

15

less deductions for a $350,000 Rados back charge and $18,244.51 in DRB charges). Id. Nada’s

16

final progress billing to Rados reflects a line item credit of $850,000 to Nada and debits for the

17

Rados back charge and DRB costs for net billing of $481,755.49 and a net balance due under the

18

Nada-Rados subcontract of $847,383.74. Id. Rados paid Nada the $847,383.74 outstanding on the

19

subcontract by check dated July 10, 2012. Id. The $850,000 credit (and net payment of

20

$481,755.49) that Nada received from Rados compensated Nada for no costs other than the costs

21

categorized as items A-F on the chart shown above. Id.

22

Nada has no obligation—existing, inchoate, contingent, or otherwise—to repay either Rados or

23

the SFPUC for the $850,000 credit or $481,755.49 net payment that Nada received in settlement of

24

its Request for Change. Id. Nada did not purchase insurance or pay insurance premiums to either

25

Rados or the SFPUC in exchange for the credit and payment it received in settlement of its Request

26

for Change. Id. at 6-7.

27

VI. THE DAMAGES NADA SEEKS IN THIS LITIGATION

28

In this litigation, Nada seeks to recover the following categories of costs in the amounts shown

C 13-04325 LB
ORDER

6

1

below:

2
3
4
5
6
7
8
9
10

12
For the Northern District of California

UNITED STATES DISTRICT COURT

11

13
14
15
16

Id. at 7. The categories and amounts of costs listed in items A-F of Nada’s damages disclosures are

17

identical to the categories and amounts of costs listed in items A-F of Nada’s Request for Change as

18

summarized in the previous chart, except that Nada deducted from item C of Nada’s damage

19

disclosures costs that Nada incurred for cutter head repairs and deducted from item F additional

20

costs that Nada incurred after the MTBM had been re-launched. Id.

21

VII. NADA’S CLAIMED PROPERTY DAMAGE

22
23
24

For purposes of California’s economic loss rule, Nada claims that it suffered four items of
damage to property other than the MTBM as a result of the MTBM’s immobilization:
First, Nada claims that it suffered damage to the cutter head in that the MTBM’s immobilization

25

caused the cutter head to be “effectively ‘lost’ underground unless and until the MTBM could be

26

rescued.” Id. at 7-8.

27
28

Second, Nada claims that it suffered damage to the pipe lengths installed in the tunnel at the time
the MBTM failed in that the MTBM’s immobilization caused the pipe lengths to be “effectively

C 13-04325 LB
ORDER

7

1

‘lost’ underground unless and until the MTBM could be rescued since they could not be used for

2

their intended purpose (or any purpose).” Id. at 8.

3

Third, Nada claims that it suffered damage to its “license to use the property of SFPUC” in that

4

“Nada was unable to use its contractual license to use the real property owned by SFPUC unless and

5

until the MTBM could be rescued, and Nada had a contractual duty to promptly remedy and/or

6

repair the immobilized MTBM’s interference with the tunnel profile.” Id.
Fourth, and finally, Nada claims that it suffered damage to its “lease obligations to Walter C.

8

Smith and Akkerman” in that “when the MTBM became immobilized due to a gear box failure, the

9

MTBM that Nada had leased from Akkerman, and the increase kit that Nada had leased from Walter

10

C. Smith, were effectively ‘lost’ underground unless and until the MTBM, and the attached increase

11

kit could be rescued.” Id.

12
For the Northern District of California

UNITED STATES DISTRICT COURT

7

Nada claims no other elements of damage to “other property” within the meaning of California’s

13

economic loss rule. Id.

14

VIII. PROCEDURAL HISTORY

15

Nada filed its original complaint, which named only Besser as a defendant, on September 18,

16

2013. Nada Original Complaint, ECF No. 1. On October 4, 2013, Nada filed its First Amended

17

Complaint, which added PEM as a defendant. Nada Complaint, ECF No. 6. Against Besser, Nada

18

brings claims for strict liability based on a manufacturing defect, negligence in the context of

19

products liability, equitable indemnity, fraud, and negligent misrepresentation. See id. ¶¶ 43-87.

20

On September 11, 2014, Besser filed the instant motion for summary judgment. Motion, ECF

21

No. 71. Nada filed an opposition on September 25, 2014, and Besser filed a reply on October 2,

22

2014. Opposition, ECF No. 84; Reply, ECF No. 89. The court held a hearing on the matter on

23

November 6, 2014. 11/6/14 Minute Order, ECF No. 100.

24

ANALYSIS

25

I. THE SUMMARY JUDGMENT LEGAL STANDARD

26

The court must grant a motion for summary judgment if the movant shows that there is no

27

genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of

28

law. Fed. R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Material

C 13-04325 LB
ORDER

8

1

facts are those that may affect the outcome of the case. Anderson, 477 U.S. at 248. A dispute about

2

a material fact is genuine if there is sufficient evidence for a reasonable jury to return a verdict for

3

the non-moving party. Id. at 248-49.

4

The party moving for summary judgment bears the initial burden of informing the court of the

5

basis for the motion, and identifying portions of the pleadings, depositions, answers to

6

interrogatories, admissions, or affidavits which demonstrate the absence of a triable issue of material

7

fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To meet its burden, “the moving party

8

must either produce evidence negating an essential element of the nonmoving party’s claim or

9

defense or show that the nonmoving party does not have enough evidence of an essential element to

Companies, Inc., 210 F.3d 1099, 1102 (9th Cir. 2000); see Devereaux v. Abbey, 263 F.3d 1070, 1076

12
For the Northern District of California

carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co., Ltd. v. Fritz

11
UNITED STATES DISTRICT COURT

10

(9th Cir. 2001) (“When the nonmoving party has the burden of proof at trial, the moving party need

13

only point out ‘that there is an absence of evidence to support the nonmoving party’s case.’”)

14

(quoting Celotex, 477 U.S. at 325).

15

If the moving party meets its initial burden, the burden shifts to the non-moving party to produce

16

evidence supporting its claims or defenses. Nissan Fire & Marine Ins. Co., Ltd., 210 F.3d at 1103.

17

The non-moving party may not rest upon mere allegations or denials of the adverse party's evidence,

18

but instead must produce admissible evidence that shows there is a genuine issue of material fact for

19

trial. Devereaux, 263 F.3d at 1076. If the non-moving party does not produce evidence to show a

20

genuine issue of material fact, the moving party is entitled to summary judgment. Celotex, 477 U.S.

21

at 323.

22

In ruling on a motion for summary judgment, inferences drawn from the underlying facts are

23

viewed in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith

24

Radio Corp., 475 U.S. 574, 587 (1986).

25

II. JUDICIAL ESTOPPEL

26

Besser first argues that Nada should be judicially estopped from asserting any of its claims

27

against Besser because its factual allegations and theory of recovery in this action contradict the

28

factual allegations and theory of recovery that it presented to the DRB and which led to a settlement

C 13-04325 LB
ORDER

9

1

in its favor. See Motion, ECF No. 71 at 7, 9-16. If Nada is estopped from asserting its current

2

theory, then it will not be able to prove that the cast iron planetary carrier manufactured by Besser

3

caused the harm for which it seeks relief, and therefore its claims against Besser necessarily fail.

4

See id. at 7, 16.2

5

Federal law on judicial estoppel governs cases in federal courts regardless of whether they

6

involve state law claims. Johnson v. Oregon Dep’t of Human Res. Rehab. Div., 141 F.3d 1361,

7

1364 (9th Cir. 1998); Rissetto v. Plumbers and Steamfitters Local 343, 94 F.3d 597, 603 (9th Cir.

8

1996). Judicial estoppel is an equitable doctrine that prevents a party from benefitting by taking one

9

position but then later seeking to benefit by taking a clearly inconsistent position. Hamilton v. State

same action or in different actions,” Samson v. NAMA Holdings, LLC, 637 F.3d 915, 935 (9th Cir.

12
For the Northern District of California

Farm Fire & Cas. Ins. Co., 270 F.3d 778, 782 (9th Cir. 2001). It “applies to positions taken in the

11
UNITED STATES DISTRICT COURT

10

2010) (citing Rissetto, 94 F.3d at 603)), and is intended to protect the integrity of the judicial process

13

by preventing a litigant from “playing fast and loose with the courts,” Russell v. Rolfs, 893 F.2d

14

1033, 1037 (9th Cir. 1990). “It also ‘applies to a party’s stated position whether it is an expression

15

of intention, a statement of fact, or a legal assertion.’” Samson, 637 F.3d at 935 (quoting Wagner v.

16

Prof’l Eng’rs in California Gov’t, 354 F.3d 1036, 1044 (9th Cir. 2004)).

17

Judicial estoppel may be invoked by the court at its discretion. Morris v. California, 966 F.2d

18

448, 453 (9th Cir. 1991). Several factors help determine whether judicial estoppel applies.

19

Hamilton, 270 F.3d at 782 (citing New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001)). “‘First,

20

a party’s later position must be ‘clearly inconsistent’ with its earlier position.’” Id. (quoting New

21
22
23
24
25
26
27
28

2

A party may assert the doctrine of judicial estoppel in a motion for summary judgment to
bar a claim based on an inconsistent position. See Elston v. Westport Ins. Co., 253 Fed. Appx. 697,
699 (9th Cir. 2007) (affirming the district court’s grant of summary judgment against plaintiff on the
basis that her claims were barred by judicial estoppel). A party seeking to defeat summary judgment
on judicial estoppel grounds must “sufficiently explain” a prior judicial position that is inconsistent
with an essential element of its claim. See Cleveland v. Policy Management Systems Corp., 526
U.S. 795, 806 (1999) (a party must “provide a sufficient explanation” for a prior inconsistent
position to defeat summary judgment); Fewer v. Copper & Brass Sales, Inc., 183 Fed. Appx. 696,
696 (9th Cir. June 9, 2006) (“Because Fewer failed to ‘proffer a sufficient explanation’ to the district
court for these inconsistent positions, the court did not abuse its discretion applying the doctrine of
judicial estoppel.”).
C 13-04325 LB
ORDER

10

1

Hampshire, 532 U.S. at 750). Second, the party must have “‘succeeded in persuading a court to

2

accept that party’s earlier position.’” Id. at 782 (quoting New Hampshire, 532 U.S. at 750). “‘Third,

3

the party seeking to assert an inconsistent position would derive an unfair advantage or impose an

4

unfair detriment on the opposing party if not estopped.’” Id. (quoting New Hampshire, 532 U.S. at

5

751). These factors, however, are not “‘inflexible prerequisites or an exhaustive formula’” because

6

“‘[a]dditional considerations may inform the doctrine’s application in specific factual contexts.’” Id.

7

(quoting New Hampshire, 532 U.S. at 751). For example, another factor that has been considered is

8

whether the party to be estopped acted inadvertently or with an intent to defraud the court or

9

creditors. Johnson, 141 F.3d at 1369 (“If incompatible positions are based not on chicanery, but

10

But before the court applies these (and other) factors, it must determine whether judicial estoppel

12
For the Northern District of California

UNITED STATES DISTRICT COURT

11

only on inadvertence or mistake, judicial estoppel does not apply.”); see Samson, 637 F.3d at 935.

can be applied when the allegedly inconsistent position was taken before the DRB. The Ninth

13

Circuit has made clear that the doctrine of judicial estoppel applies not only where prior inconsistent

14

statements were made to a court, but also where those statements were made in an administrative

15

proceeding. See Rissetto, 94 F.3d at 604 (noting that “[t]hough called judicial estoppel, the doctrine

16

has been applied, rightly in our view, to proceedings in which a party to an administrative

17

proceeding obtains a favorable order that he seeks to repudiate in a subsequent judicial proceeding”

18

and holding that “the doctrine of judicial estoppel is not rendered inapplicable in this case by the fact

19

that plaintiff’s prior position was taken in a workers’ compensation proceeding rather than in a

20

court”); see also Smith v. Montgomery Ward & Co., 388 F.2d 291, 291 (6th Cir. 1968) (workers’

21

compensation proceeding); Milton H. Greene Archives, Inc. v. CMG Worldwide, Inc., 568 F. Supp.

22

2d 1152, 1184-85 (C.D. Cal. 2008) (California inheritance tax appraiser); Simo v. Home Health &

23

Hospice Care, 906 F. Supp. 714, 718 (D.N.H. 1995) (Social Security Administration disability

24

proceeding); UNUM Corp. v. United States, 886 F. Supp. 150, 158 (D. Me. 1995) (Maine Bureau of

25

Insurance approval proceeding); Zapata Gulf Marine Corp. v. Puerto Rico Maritime Shipping Auth.,

26

731 F. Supp. 747, 750 (E.D. La. 1990) (Interstate Commerce Commission proceeding). And at least

27

one court has applied the doctrine where the inconsistent position was taken before the United States

28

Patent and Trademark Office. See Synopsys, Inc. v. Magma Design Automation, Inc., C 04–3923

C 13-04325 LB
ORDER

11

1

MMC, 2007 WL 322353, at *25-26 (N.D. Cal. Jan. 31, 2007) (applying the doctrine with respect to

2

prior statements made to the U.S. Patent and Trademark Office); cf. Lampi Corp. v. Am. Power

3

Prods., Inc., 228 F.3d 1365, 1377 (Fed. Cir. 2000) (stating that “we are troubled by the

4

inconsistencies between [the plaintiff’s] statements to the PTO . . . and the position taken by [the

5

plaintiff] in this litigation,” but ultimately affirming the decision not to judicially estop the plaintiff

6

where the district court found that the plaintiff’s inconsistencies were inadvertent). “This rule has

7

been justified on the ground that ‘[t]he truth is no less important to an administrative body acting in

8

a quasi-judicial capacity than it is to a court of law.’” Rissetto, 94 F.3d at 604 (quoting Muellner v.

9

Mars, Inc., 714 F. Supp. 351, 357 (N.D. Ill. 1989)).

judicial” proceeding such that judicial estoppel may be applied. See Reply, ECF No. 89 at 8-9. The

12
For the Northern District of California

Besser cites many of these opinions and argues that the DMB proceeding likewise is a “quasi-

11
UNITED STATES DISTRICT COURT

10

court disagrees. It is true that the DRB proceeding had many of the hallmarks of a judicial or quasi-

13

judicial-proceeding: it was adversarial; the parties submitted briefs making arguments and citing to

14

evidence; the parties could respond to each other’s arguments; the parties could submit the opinions

15

of experts; etc. But it lacked the most important hallmark—the ability to make a decision.3 In all of

16
17
18
19
20
21
22
23
24
25
26
27
28

3

Although there does not appear to be an opinion holding that judicial estoppel applies only
to instances where the prior, allegedly inconsistent position was taken before a quasi-judicial body
that has decision-making authority, opinions in other contexts certainly suggest that the ability to
make a decision is critical to determining whether that body is acting in quasi-judicial capacity. See
United States v. MacDonald, 585 F.2d 1211, 1212 (4th Cir.1978) (recognizing in the double
jeopardy context that a military, investigatory hearing which did not adjudicate the defendant’s guilt
or innocence but rather offered only a recommendation to the Commanding Officer as to the charges
against the defendant did not permit jeopardy to attach); Eaton v. Siemens, No. CIV. S-07-315 FCD
KJM, 2007 WL 1500724, at *3-6 (E.D. Cal. May 23, 2007) (finding that an arbitrator’s “advisory
decision” (i.e., a recommendation) to a city manager for his use in deciding plaintiff’s appeal of the
termination of his employment did not bar under res judicata the plaintiff’s subsequent action in
district court); Darnell v. Lloyd, 395 F. Supp. 1210, 1214 n.4 (D. Conn. 1975) (recognizing that
federal common law rules of preclusion apply only to state administrative decisions that are “judicial
in nature” and that the administrative hearing was not “an adversary proceeding in which the
Commissioner was empowered to adjudicate rights of the parties before him” but rather, the hearing
was an “advisory proceeding designed to help the Commissioner make his decision”); cf. Lambert v.
Andrews, 2003 WL 22508205, at *1 (9th Cir. Oct. 31, 2005) (finding that the Nevada State
Personnel Commission “clearly act[ed] in a judicial capacity” because, among other reasons, the
Commission’s decision was “binding on both parties”).
C 13-04325 LB
ORDER

12

1

the opinions cited above, the deliberative bodies all had the power to make a decision. The workers’

2

compensation appeals board in Rissetto approved the plaintiff’s claim for disability benefits. 94

3

F.3d at 600. The Workmen’s Compensation Commission in Smith did the same thing. 388 F.2d at

4

292. The California inheritance tax appraiser in Milton H. Greene Archives made a determination of

5

the decedent’s residence, assessed the amount of inheritance tax to be paid, and submitted a report to

6

the superior court (which could then approve or reject the decision in that report). 568 F. Supp. 2d

7

at 1185. The Social Security Administration in Simo awarded the plaintiff permanent disability

8

benefits. 906 F. Supp. at 716. The Maine Bureau of Insurance in UNUM approved the plaintiff’s

9

proposed conversion from a mutual insurance company into a stock insurance company. 886 F.

petition to discontinue a tariff investigation. 731 F. Supp. 748-49. And the United States Patent and

12
For the Northern District of California

Supp. at 156. The Interstate Commerce Commission in Zapata Gulf Marine granted the assignor’s

11
UNITED STATES DISTRICT COURT

10

Trademark Office in Synopsys issued two patents that were applied for. 2007 WL 322353, at *17.

13

The DRB had no such power. Instead, it was empowered “to assist the parties by facilitating the

14

timely resolution of disputes” and was limited to issuing a nonbinding (albeit written)

15

recommendation that the SFPUC, Rados, and Nada could accept or reject. DRB Specification, ECF

16

No. 71-9 ¶¶ 1.1, 2.5, 9.7. The DRB Specification itself even recognized that possibility that the

17

DRB process might not result in a resolution of the dispute. Id. ¶ 10.1. If the DRB process itself

18

might not result in a resolution of the dispute, it certainly cannot be considered to have adjudicated

19

it. Besser cites no authority holding, or even suggesting, that the doctrine of judicial estoppel may

20

be applied in the context of a body with no power to make a decision that is binding on the parties

21

before it. Without it, and after considering the authority on this issue, the court will not judicially

22

estop Nada from asserting its claims against Besser.4

23

III. COLLATERAL SOURCE RULE

24
25

Besser next argues that Nada’s potential recovery must be offset by the money is received from
the settlement with the SFPUC and Rados. See Motion, ECF No. 71 at 16-20. Besser asserts that

26
27
28

4

Because the court finds that the doctrine of judicial estoppel does not apply in this context,
the court has no occasion to address the parties’ arguments about whether the judicial estoppel
factors support its exercise here.
C 13-04325 LB
ORDER

13

1

because Nada (according to Nada’s own calculations) received $680,627.07 from Rados (which

2

received the payment from SFPUC), it is limited to recovering $688,927.70 from Besser in this

3

action. See Reply, ECF No. 89 at 11.4 Nada contends that its potential recovery is not so limited

4

because California’s so-called “collateral source rule” applies here. See Opposition, ECF No. 84 at

5

18-22.

compensable damages supported by the evidence,” “[r]egardless of the nature and number of legal

8

theories advanced by the plaintiff.” Tavaglione v. Billings, 4 Cal. 4th 1150, 1158-59 (1993) (citing

9

Shell v. Schmidt, 126 Cal. App. 2d 279, 291 (Cal. Ct. App. 1954)). Thus, “[d]ouble or duplicative

10

recovery for the same items of damage amounts to overcompensation and is therefore prohibited.”

11

Id. at 1159 (citing Shell, 126 Cal. App. 2d at 291). But under the collateral source rule, “if an

12
For the Northern District of California

Normally, a plaintiff is “entitled to no more than a single recovery for each distinct item of

7

UNITED STATES DISTRICT COURT

6

injured party receives some compensation for his injuries from a source wholly independent of the

13

tortfeasor, such payment should not be deducted from the damages which the plaintiff would

14

otherwise collect from the tortfeasor.” Helfand. v. S. Cal. Rapid Transit Dist., 2 Cal. 3d 1, 6 (1970).

15

In Helfand, the plaintiff was injured by a tortfeasor during an automobile collision. Id. at 4. The

16

plaintiff sued the tortfeasor and asserted damages that included his medical expenses. Id. at 5. The

17

tortfeasor wanted to introduce evidence showing that the plaintiff’s medical insurance carrier paid

18

about 80% of the plaintiff’s medical bills and that other insurance carriers may have paid for some

19

of the rest. Id. Based on this evidence, the tortfeasor argued that the collateral source rule did not

20

apply and thus the money that the plaintiff sought to recover from him should be offset by the

21
22
23
24
25
26
27
28

4

In its motion, Besser argued that, because the SFPUC paid $850,000 to Rados (which in
turn paid $481,755.49 to Nada because Rados deducted $350,000 for a back charge and $18,244.51
in DRB charges), Nada’s recovery in this action must be offset by $850,000 and thus was limited to
$519,554.77. See Motion, ECF No. 71 at 17, 19-20. In its opposition, Nada argued that the amount
of any offset was disputed issue of material fact and stated that not all of the $850,000 was
duplicative of amounts it claims in this action. See Opposition, ECF No. 84 at 21. It further stated
that only $680,627.07 of the $850,000 was received for damages that Nada also claims in this action,
leaving a potential recovery of at least $688,927.70. See id. at 22. In its reply, to avoid the disputed
issue of material fact, Besser adopted Nada’s calculations and argued that Nada’s recovery in this
action is limited to $688,927.70. See Reply, ECF No. 89 at 11. Neither party mentioned this issue
at the hearing.
C 13-04325 LB
ORDER

14

1
2

money that the plaintiff received from his insurance carriers. Id.
The superior court rejected the tortfeasor’s argument, and the California Supreme Court affirmed

3

that decision. Id. at 14. In concluding that the collateral source rule did in fact apply to this

4

situation, the Court reasoned that the plaintiff “received benefits from his medical insurance

5

coverage only because he had long paid premiums to obtain them.” Id. at 9. “Such an origin,” the

6

court found, “constitute[s] a completely independent source.” Id. It went on to note that application

7

of the collateral source rule in this situation “embodies the venerable concept that a person who has

8

invested years of insurance premiums to assure his medical care should receive the benefits of his

9

thrift.” Id. at 9-10. When this is the case, “[t]he tortfeasor should not garner the benefits of his
victim’s providence.” Id. at 10. The Court further explained that this application of the collateral

11

source rule was supported by public policy considerations:

12
For the Northern District of California

UNITED STATES DISTRICT COURT

10

16

The collateral source rule expresses a policy judgment in favor of encouraging
citizens to purchase and maintain insurance for personal injuries and for other
eventualities. Courts consider insurance a form of investment, the benefits of which
become payable without respect to any other possible source of funds. If we were to
permit a tortfeasor to mitigate damages with payments from plaintiff’s insurance,
plaintiff would be in a position inferior to that of having bought no insurance,
because his payment of premiums would have earned no benefit. Defendant should
not be able to avoid payment of full compensation for the injury inflicted merely
because the victim has had the foresight to provide himself with insurance.

17

Id. For these reasons, the Court “reaffirm[ed] our adherence to the collateral source rule in tort cases

18

in which the plaintiff has been compensated by an independent collateral source—such as insurance,

19

pension, continued wages, or disability payments—for which he had actually or constructively . . .

20

paid or in cases in which the collateral source would be recompensed from the tort recovery through

21

subrogation, refund of benefits, or some other arrangement.” Id. at 13-14.

13
14
15

22

Besser rightly points out that this case has none of the characteristics of the cases in which the

23

collateral source rule has been applied. “While commonly applied to exclude evidence of insurance

24

payments, over the years, a variety of benefits provided to plaintiffs have been held to be collateral

25

sources of compensation that should not be considered in mitigation of a plaintiff’s damages.”

26

Smock v. State, 138 Cal. App. 4th 883, 886-87 (Cal. Ct. App. 2006) (citing Helfend, 2 Cal. 3d at 9-

27

14 (medical insurance benefits); Fifield Manor v. Finston, 54 Cal. 2d 632, 637 (1960) (value of

28

gratuitous medical services); McKinney v. California Portland Cement Co., 96 Cal. App. 4th 1214,

C 13-04325 LB
ORDER

15

1220 (Cal. Ct. App. 2002) (social security and pension benefits); Arambula v. Wells, 72 Cal. App.

2

4th 1006, 1008 (Cal. Ct. App. 1999) (continued wages paid by an employer); Pac. Gas & Elec. Co.

3

v. Superior Court, 28 Cal. App. 4th 174, 176-177 (Cal. Ct. App. 1994) (fidelity insurance proceeds);

4

Hanif v. Housing Authority, 200 Cal. App. 3d 635, 644 (Cal. Ct. App. 1988) (value of home care

5

provided by a child’s parents); Rodriguez v. McDonnell Douglas Corp., 87 Cal. App. 3d 626, 662

6

(Cal. Ct. App. 1978) (value of nursing services provided by a spouse); Tremeroli v. Austin Trailer

7

Equip. Co., 102 Cal. App. 2d 464, 482 (Cal. Ct. App. 1951) (continued wages paid by an

8

employer)). Besser also cites an opinion that suggests that additional money paid to a contractor

9

pursuant to a change order does not constitute money from a collateral source, although this opinion

10

does not discuss the issue in detail. See Huber, Hunt & Nichols, Inc. v. Moore, 67 Cal. App. 3d 278,

11

304 (Cal. Ct. App. 1977).

12
For the Northern District of California

UNITED STATES DISTRICT COURT

1

For its part, Nada cites no authority holding or even suggesting that the collateral source rule

13

should be applied in the circumstances present here. Instead, it relies on Helfand for its general

14

summary of the collateral source rule—that “if an injured party receives some compensation for his

15

injuries from a source wholly independent of the tortfeasor, such payment should not be deducted

16

from the damages which the plaintiff would otherwise collect from the tortfeasor,” 2 Cal. 3d at

17

6—but it ignores both the facts of that case and the Court’s express limitation of its holding, see id.

18

at 6 n.3 (“There are many sorts of collateral sources and a great variety of contexts in which the

19

‘rule’ might be applied. We expressly do not consider or determine the appropriateness of the rule’s

20

application in the myriad of possible solutions which we have not discussed or which are not

21

presented by the facts of this case.”); see also Arambula, 72 Cal. App. 4th at 1010-11 (noting that

22

the California Supreme Court specifically limited Helfand’s holding to the facts of that case and

23

stating that Helfand thus should be construed narrowly); Kirtland & Packard v. Superior Court, 59

24

Cal. App. 3d 140, 145 (Cal. Ct. App. 1976) (recognizing that the California Supreme Court

25

“expressly disavowed any intent to extend the collateral source rule beyond the particular facts of

26

Helfand”).

27
28

It also tries to analogize this case to Helfand by arguing that the SFPUC and Rados cannot be
considered “other tortfeasors” for purposes of the collateral source rule and were “wholly

C 13-04325 LB
ORDER

16

1

independent” from Besser (the alleged tortfeasor) because SFPUC and Rados had to pay Nada

2

Pacific pursuant to California Public Contracts Code § 7104. That statute provides:

3
4
5

Any public works contract of a local public entity which involves digging trenches or
other excavations that extend deeper than four feet below the surface shall contain a
clause which provides the following:
(a) That the contractor shall promptly, and before the following conditions are
disturbed, notify the local public entity, in writing, of any:

6
(1) Material that the contractor believes may be material that is hazardous waste,
as defined in Section 25117 of the Health and Safety Code, that is required to be
removed to a Class I, Class II, or Class III disposal site in accordance with
provisions of existing law.

7
8

(2) Subsurface or latent physical conditions at the site differing from those
indicated by information about the site made available to bidders prior to the
deadline for submitting bids.

9
10

(3) Unknown physical conditions at the site of any unusual nature, different
materially from those ordinarily encountered and generally recognized as inherent
in work of the character provided for in the contract.

12
For the Northern District of California

UNITED STATES DISTRICT COURT

11

13
14
15
16
17
18
19

(b) That the local public entity shall promptly investigate the conditions, and if it
finds that the conditions do materially so differ, or do involve hazardous waste, and
cause a decrease or increase in the contractor's cost of, or the time required for,
performance of any part of the work shall issue a change order under the procedures
described in the contract.
(c) That, in the event that a dispute arises between the local public entity and the
contractor whether the conditions materially differ, or involve hazardous waste, or
cause a decrease or increase in the contractor's cost of, or time required for,
performance of any part of the work, the contractor shall not be excused from any
scheduled completion date provided for by the contract, but shall proceed with all
work to be performed under the contract. The contractor shall retain any and all rights
provided either by contract or by law which pertain to the resolution of disputes and
protests between the contracting parties.

20
21

Cal. Pub. Contracts Code § 7104. In other words, Nada Pacific received money from the SFPUC

22

and Rados under statutory/contract theory, not a tort theory.

23

Even so, the larger point is that the facts of this simply are different from the situations where

24

courts have applied the collateral source rule. Nada was not “compensated by an independent

25

collateral source—such as insurance, pension, continued wages, or disability payments—for which

26

he had actually or constructively . . . paid,” and the SFPUC will not be “recompensed from the tort

27

recovery through subrogation, refund of benefits, or some other arrangement.” Helfand, 2 Cal. 3d at

28

13-14. As explained in Helfand, the collateral source rule is a limited exception to the more general

C 13-04325 LB
ORDER

17

1

rule against duplicate recoveries, and the court does not believe that the rule applies here. To the

2

extent that Nada tries to come within Helfand by arguing that it “constructively ‘paid’ for the right

3

to receive [the additional compensation that Rados received under the change order] by promising to

4

perform, and actually performing, its work under [its subcontract with Rados],” see Opposition, ECF

5

No. 84 at 20, it provides no evidence to support this assertion.

6

Accordingly, the court finds that Nada is limited to recovering $688,927.70 from Besser in this

7

action.

8

IV. ECONOMIC LOSS RULE

9
10

Finally, Besser argues that California’s so-called “economic loss rule” bars the tort claims that
Nada brings against it. See Motion, ECF No. 71 at 20-23.
In California, “[t]he economic loss rule requires a purchaser to recover in contract for purely

12
For the Northern District of California

UNITED STATES DISTRICT COURT

11

economic loss due to disappointed expectations, unless he can demonstrate harm above and beyond

13

a broken contractual promise.” Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal. 4th 979, 988

14

(2004). “Economic loss consists of damages for inadequate value, costs of repair and replacement

15

of the defective product or consequent loss of profits—without any claim of personal injury or

16

damages to other property.” Id. (internal citations and ellipses omitted). Under the rule, a plaintiff

17

may recover in tort only where he or she can allege personal injury or “damage to ‘other property,’

18

that is, property other than the product itself.” Jimenez v. Superior Court, 29 Cal.4th 473, 482-83

19

(2002) (emphasis in original). “The function of the economic loss rule is to prevent tort law from

20

shifting back to sellers a specific risk that better rests with buyers—the risk that a product will not

21

perform to a particular level beyond that warranted by the seller. If a buyer desires protection

22

against this risk, she can and should negotiate for a higher warranty or seek it out from other sellers

23

in the marketplace.” Robinson, 34 Cal.4th at 997 (2004) (Werdegar, J., dissenting) (citing Seely v.

24

White Motor Co., 63 Cal. 2d 9, 18-19 (1965)).

25

Nada asserts only tort claims against Besser, and through this action it seeks only economic

26

damages that cannot be recovered through them. It is undisputed that the damages to “other

27

property” that Nada seeks are based on its inability to use the MTBM’s cutter head, the pipe lengths

28

installed in the tunnel behind the MTBM, its “license to use the property of SFPUC,” and its “lease

C 13-04325 LB
ORDER

18

cites several opinions that make clear that, to avoid the economic loss rule, the damage to “other

3

property” must be physical damage. See, e.g., Jimenez, 29 Cal. 4th at 482-83; County of Santa

4

Clara v. Atl. Richfield Co., 137 Cal. App. 4th 292, 320 (Cal. Ct. App. 2006); KB Home v. Superior

5

Court, 112 Cal. App. 4th 1076, 1084 (Cal. Ct. App. 2003); see also City of Pomona v. SQM N. Am.

6

Corp., 70 F.3d 1036, 1050 (9th Cir. 2014) (economic loss rule did not bar the plaintiff’s claims

7

where the plaintiff alleged physical damage (contamination) to its groundwater). It also cites several

8

opinions holding that the “loss of use” of “other property” does not constitute physical damage to it;

9

instead, it constitutes an economic loss. See Anthony v. Kelsey-Hayes Co., 25 Cal. App. 3d 442, 447

10

(Cal. Ct. App. 1972) (the defendant’s defective wheels, which were installed in the plaintiff’s trucks,

11

made the trucks unuseable and resulted in a business loss; the court affirmed the Superior Court’s

12
For the Northern District of California

obligations to Walter C. Smith and Akkerman” while the MTBM was stuck underground. Nada

2

UNITED STATES DISTRICT COURT

1

determination that the plaintiff’s loss of use of the trucks was an economic loss for which the

13

plaintiff must recover under contract law); see also Casden Builders Inc. v. Entre Prises USA, Inc.,

14

No. CV 10-2353 ODW (CWx), 2010 WL 2889496, at *3-4 (C.D. Cal. July 21, 2010) (the

15

defendant’s defective product, which was installed in the plaintiff’s climbing wall, rendered the wall

16

inoperable; the court applied California’s economic loss rule, concluded that the plaintiff’s loss of

17

use of its climbing wall was an economic loss, and dismissed with prejudice the plaintiff’s tort

18

claim); W./Scott Fetzer Co. v. Braden Partners, LP, No. C-03-4114 VRW, 2006 WL 2263827, at *5

19

(N.D. Cal. Aug. 7, 2006) (the defendant’s defective valve allowed oxygen in the plaintiff’s oxygen

20

cylinders to escape, causing a business loss; the court noted that California’s economic loss rule “is

21

intended to ensure that redress for lost property alone, unaccompanied by collateral harm, may only

22

be sought under contract law,” found that the loss of the oxygen did not constitute physical harm to

23

it, and entered summary judgment in the defendant’s favor on the plaintiff’s negligence claim); cf. N.

24

Am. Chem. Co. v. Superior Court, 59 Cal. App. 4th 764, 777 n.8 (Cal. Ct. App. 1997) (“Although

25

purely economic loss usually occurs in the form of lost profits, it may also include consequential

26

damages, loss of expected proceeds, lost opportunities, diminution in the value of the allegedly

27

defective property, the costs of repair and replacement, loss of use, loss of goodwill, and damages

28

paid to third parties as a result of a defendant’s negligence.”).

C 13-04325 LB
ORDER

19

1

With the exception of W./Scott Fetzer, Nada ignores the authorities cited by Besser. See

2

Opposition, ECF No. 84 at 22-29. As for W./Scott Fetzer, Nada says that the escaped oxygen at

3

issue there was gone forever, while here it contends that the “other property” was “physically

4

restrained and/or blocked.” Id. at 23. The court fails to see a meaningful distinction; in both

5

instances, the “other property” was made unusable.

6

Nada also cites Catalyst Old River Hydroelectric Ltd. P’ship v. Ingram Badge Co., 639 F.3d 207

7

(5th Cir. 2011), where the plaintiff, the owner of a hydroelectric station, suffered damages after the

8

defendant’s boat caused a collision which in turn caused less water to flow into the plaintiff’s

9

station. Id. at 209. Because less water flowed into the station, the plaintiff produced less electricity

value of the electricity that it was not able to generate. Id. at 210. The Fifth Circuit found that the

12
For the Northern District of California

than usual. Id. The plaintiff brought tort claims against the defendant to recover damages for the

11
UNITED STATES DISTRICT COURT

10

plaintiff’s tort claims were not barred by the economic loss rule. Id. at 211, 214. But the ruling is

13

inapposite because in Catalyst, the Fifth Circuit was applying the economic loss rule under federal

14

maritime law. See id. at 210. That rule states that “there can be no recovery for economic loss

15

absent physical damage to or an invasion of a proprietary interest.” Id. (citing Robins Dry Dock &

16

Repair Co. v. Flint, 275 U.S. 303, 308-09 (1927); Louisiana ex. rel. Guste v. M/V TESTBANK, 752

17

F.2d 1019, 1029 (5th Cir. 1985)) (emphasis added). California’s economic loss rule is narrower than

18

the federal maritime one because the California rule does not allow recovery for the invasion of a

19

proprietary interest. Instead, as discussed above, it requires physical damage.

20

In addition, Nada cites Shade Foods, Inc. v. Innovative Prods. Sales & Mktg., Inc., 78 Cal. App.

21

4th 847, 866 (Cal. Ct. App. 2000), for its statement that “California courts have held that the

22

presence of something where it should not be can constitute property damage.” Opposition, ECF

23

No. 84 at 28. But, as Besser points out, Shade is inapposite because the court there was construing

24

the meaning of “property damage” as defined in an insurance policy. That opinion says nothing

25

about physical damage to “other property” for purposes of the economic loss rule. Nada also cites

26

Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875, 877-84 (1997), for its statement that

27

“courts have also found other instances of a piece of ‘other property’ being physically harmed when

28

the defective product caused the ‘other property’ to be physically prevented from being used as

C 13-04325 LB
ORDER

20

1

intended.” Opposition, ECF No. 84 at 28. This opinion also is inapposite because there, the “other

2

property” was lost at sea when a ship sank; the “other property” was physically destroyed. See

3

Saratoga Fishing, 520 U.S. at 877 (“This case asks us how [the economic loss rule under federal

4

maritime law] treats the physical destruction of” other property).5

liability, negligence, equitable indemnity, and negligent misrepresentation, it does not bar its claim

7

for fraud. Opposition, ECF No. 84 at 22. Nada makes this argument in a single sentence in its

8

opposition, stating that “the courts have held that the economic loss rule does not bar fraud and

9

intentional misrepresentation claims.” Id. (citing Robinson, 34 Cal. 4th at 991). But as Besser

10

correctly notes, Robinson does not state for such a broad proposition. In Robinson, the plaintiff

11

made helicopters, and the defendant made clutches that the plaintiff incorporated into its helicopters.

12
For the Northern District of California

Finally, Nada argues that, even if the economic loss rule bars its claims against Besser for strict

6

UNITED STATES DISTRICT COURT

5

34 Cal. 4th at 985. According to the parties’ contact, the defendant was supposed to ground the

13

clutches to a particular level of hardness. Id. The plaintiff needed them ground to this hardness

14

because its “type certificate” from the Federal Aviation Administration (“FAA”) required it. Id.

15

When the defendant made and sold the clutches to the plaintiff, the defendant included along with

16

the clutches a certificate stating that the clutches were ground to the required hardness. Id. at 985-

17

86. At a certain point, the defendant starting grinding the clutches to a different hardness—in

18

violation of the parties’ contract—but it still issued certificates stating that the clutches were ground

19

to the required hardness. Id. at 986. It turned out that the clutches ground to the nonconforming

20

hardness had a much higher failure rate than those ground to the conforming hardness. Id.

21

When the plaintiff found out what happened, it sued the defendant for breach of contract, breach

22

of warranty, and negligent and intentional misrepresentation. Id. at 987. The defendant argued that

23

the plaintiff’s tort claims were barred by the economic loss rule, but the California Supreme Court

24
25
26
27
28

5

Nada also cites Tasion Comm’cns, Inc. v. Ubiquiti Networks, Inc., No. C-13-1803 EMC,
2013 WL 4530470, at *6 (N.D. Cal. Aug. 26, 2013) for its discussion of the factors used to
determine whether property is “other property” for purposes of the economic loss rule. That
discussion, however, presupposed that the “other property”had been physically damaged; the radios
at issue there were physically damaged as a result of the defendant’s defective cables. See id. at *2,
*7.
C 13-04325 LB
ORDER

21

1

concluded otherwise. See id. at 988-93. What allowed the claims to survive was the fact that they

2

were based not on the defendant’s provision of clutches that did not conform to the contract but

3

instead was based on the defendant’s continued certification that the clutches were conforming when

4

it knew they were not. See id. at 990-91. As the Court explained:

5
6
7
8
9
10

. . . By issuing false certificates of conformance, [the defendant] unquestionably made
affirmative representations that [the plaintiff] justifiably relied on to its detriment.
But for [the defendant’s] affirmative misrepresentations by supplying the false
certificates of conformance, [the plaintiff] would not have accepted delivery and used
the nonconforming clutches over the course of several years, nor would it have
incurred the cost of investigating the cause of the faulty clutches. Accordingly, [the
defendant’s] tortious conduct was separate from the breach itself, which involved [the
defendant’s] provision of the nonconforming clutches. In addition, [the defendant’s]
provision of faulty clutches exposed [the plaintiff] to liability for personal damages if
a helicopter crashed and to disciplinary action by the FAA. Thus, [the defendant’s]
fraud is a tort independent of the breach. (Erlich v. Menezes, supra, 21 Cal. 4th at pp.
553–554, 87 Cal. Rptr. 2d 886, 981 P.2d 978.)

12
For the Northern District of California

UNITED STATES DISTRICT COURT

11

13
14

We hold the economic loss rule does not bar [the plaintiff’s] fraud and intentional
misrepresentation claims because they were independent of [the defendant’s] breach
of contract. (See Erlich v. Menezes, supra, 21 Cal. 4th at pp. 552–554, 87 Cal. Rptr.
2d 886, 981 P. 2d 978.)
Id. (footnote omitted). In a footnote accompanying its holding, the Court further explained that

19

. . . [i]n contrast [to cases dealing with the economic loss rule in products liability or
negligence contexts], [the plaintiff’s] claims are based on [the defendant’s]
intentional and affirmative misrepresentations that risked physical harm to persons.
[The plaintiff’s] helicopters are flown by and carry people. A properly functioning
sprag clutch is vital to the safe performance of the aircraft, and compliance with the
certificate requirement is part of an integrated regulatory scheme intended to ensure
their safe operation. The economic loss rule is designed to limit liability in
commercial activities that negligently or inadvertently go awry, not to reward
malefactors who affirmatively misrepresent and put people at risk.

20

Id. at n.7. Careful not to extend the economic loss rule too far, the Court went on to make clear that

21

its holding “is narrow in scope and limited to a defendant’s affirmative misrepresentations on which

22

a plaintiff relies and which expose a plaintiff to liability for personal damages independent of the

23

plaintiff's economic loss.” Id. at 993; United Guar. Mortg. Indem. Co. v. Countrywide Fin. Corp.,

24

660 F. Supp. 2d 1163, 1183 (C.D. Cal. Oct. 5, 2009) (noting Robinson’s narrow and limited

25

holding).

15
16
17
18

26

Here, Nada does not allege that Besser made any affirmative misrepresentations on which it

27

relied, nor does it allege that it was exposed to liability for personal damages independent of the its

28

economic loss. Without having done so, Nada cannot fit within Robinson’s narrow and limited

C 13-04325 LB
ORDER

22

1
2
3

holding.
Accordingly, the court concludes that the economic loss rule applies and bars Nada’s tort claims
against Besser.

4

CONCLUSION

5

Based on the foregoing, the court GRANTS Besser’s motion for summary judgment.

6

IT IS SO ORDERED.

7

Dated: November 10, 2014
_______________________________
LAUREL BEELER
United States Magistrate Judge

8
9
10

12
For the Northern District of California

UNITED STATES DISTRICT COURT

11

13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

C 13-04325 LB
ORDER

23