Resco Group Inc et al v. Campbell Machinery LLC et al

Filing 14

OPINION AND ORDER The court GRANTS 5 defendants' partial motion to dismiss,and dismisses Count I: Negligence; Count IV: Negligence Per Se; and Count VI: Strict Liability, of plaintiffs complaint. Signed by Senior Judge James T Moody on 8/14/18. (kjp)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
RESCO GROUP, INC., et al.,

)
)
Plaintiffs,
)
)
v.
)
)
CAMPBELL MACHINERY, LLC, et al., )
)
Defendants.
)

No. 2:18 CV 80

OPINION and ORDER
This matter is before the court on defendants’ partial motion to dismiss. (DE # 5.)
For the reasons identified below, defendants’ motion will be granted.
I.

BACKGROUND
Plaintiff Travelers Property Casualty Company of America (“Travelers”) is an

insurance company that insured plaintiff Resco Group, Inc. (“Resco”). (DE # 1 at 2.)
Defendants Campbell Machinery, LLC (“Campbell”) and C.C.D. Engineering, Inc.
(“C.C.D”) repair and rebuild heavy manufacturing equipment. (Id.)
Resco operates a plant that manufactures refractory blocks. (Id. at 3.) In February
2016, defendants responded to Resco’s solicitation for bids to replace the gear pumps on
one of its presses with piston pumps. (Id.) Defendants submitted three different quotes
for work on the press: quote 1512301D; quote 160317A; and quote 160318A. (Id. at 2-3.)
Quote 1512301D was a quote for the installation of the new motors in the press and
quote 160317A was a quote for cleaning the hydraulic tank in the press to remove

debris.1 (Id. at 3-4.) Defendants were awarded the project. (Id. at 3.)
Plaintiffs allege that defendants inaccurately determined that holes needed to be
cut in the hydraulic tank in order to accommodate the new pumps. (Id.) Plaintiffs claim
that defendants negligently cut into the tank, and then negligently cleaned up the
resulting debris in the tank. (Id. at 3-4.) According to plaintiffs, less than one hour after
the new pumps were activated, the debris in the machine caused it to seize and become
inoperable. (Id.) As a result, Travelers paid Resco $377,627 on Resco’s insurance claim,
and Resco lost its deductible. (Id.)
Plaintiffs’ complaint alleges six counts against defendants: (1) negligence; (2)
breach of contract; (3) breach of implied warranty; (4) negligence per se; (5) negligent
misrepresentation; and (6) strict liability. (DE # 1.) Defendants now move to dismiss
plaintiffs’ negligence, negligence per se, and strict liability claims for failure to state a
claim. (DE # 5.) Defendants argue that, under Indiana’s economic loss doctrine,
plaintiffs may not seek to recover their purely pecuniary losses related to defendants’
performance of the contract. (Id. at 6.) Defendants also make alternative arguments as to
why plaintiffs’ negligence per se and strict liability claims fail. However, because this
court finds that the economic loss doctrine precludes plaintiffs’ negligence, negligence
per se, and strict liability claims, the court need not address defendants’ remaining
arguments.

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The complaint does not specify what services were contemplated in quote
160318A.
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II.

LEGAL STANDARD
A judge reviewing a complaint pursuant to Rule 12(b)(6) must construe the

allegations in the complaint in the light most favorable to the non-moving party, accept
all well-pleaded facts as true, and draw all reasonable inferences in favor of the nonmovant. Erickson v. Pardus, 551 U.S. 89, 93 (2007); Reger Dev., LLC v. Nat’l City Bank, 595
F.3d 759, 763 (7th Cir. 2010). Under the liberal notice-pleading requirements of the
Federal Rules of Civil Procedure, the complaint need only contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P.
8(a)(2). A plaintiff must plead “factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v.
Iqbal, 129 S. Ct. 1937, 1949 (2009).
III.

ANALYSIS
Indiana’s economic loss doctrine limits recovery for damages arising out of a

party’s performance of its contractual obligations. Gunkel v. Renovations, Inc., 822 N.E.2d
150, 153 (Ind. 2005). However, the doctrine does not apply to damage to “other
property” – property that was not the subject of the parties’ agreement. Id. “[D]amage
from a defective product or service may be recoverable under a tort theory if the defect
causes personal injury or damage to other property, but contract law governs damage
to the product or service itself and purely economic loss arising from the failure of the
product or service to perform as expected.” Id. “Whether damaged property is ‘other
property’ turns on whether it was acquired by the plaintiff as a component of the

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defective product or was acquired separately.” Id. at 151.
There are two cases from the Supreme Court of Indiana that address the “other
property” exception to the economic loss doctrine. Comparison of these cases is helpful
in demonstrating why the exception does not apply in this case. In Gunkel, the plaintiffs
contracted with a third party for the construction of a new home. 833 N.E.2d at 151. Six
months later, the plaintiffs contracted with the defendant construction company to
install a stone façade on the home. Id. Shortly after the façade was installed, water
began to leak through gaps in the façade, damaging the walls, ceilings, floors, drywall,
and carpet in the home. Id. The plaintiffs sued the construction company for negligence,
and the construction company argued that the claim was barred by the economic loss
doctrine. Id. at 151-52. The Supreme Court of Indiana held that the negligence claim
regarding the façade was barred, but the negligence claim regarding the damage to the
rest of the home was not, as the rest of the home qualified as “other property.” Id. at
156. The Court found that the product or service that the plaintiffs purchased from the
defendant was the façade, and the agreement to install the façade was made under a
contract that was wholly independent from the contract to build the home. Id. The home
itself qualified as “other property” because it was not the subject of plaintiffs’ contract
with defendants. Therefore, plaintiffs’ negligence claim regarding the home was not
precluded by the economic loss doctrine. Id. at 156-57.
In Indianapolis-Marion Cty. Pub. Library v. Charlier Clark & Linard, P.C., a city
library hired an architect to renovate its library. 929 N.E.2d 722, 725 (Ind. 2010). The

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architect then hired subcontractors to perform architectural and engineering services.
Id. After the construction had significantly progressed, the library discovered problems
with the structural integrity of the parking garage, which served as the foundation for
the rest of the building. Id. The library sued the subcontractors and the subcontractors
argued that the library’s negligence claims were barred by the economic loss doctrine.
Id. at 726. Here, unlike in Gunkel, the Supreme Court of Indiana agreed that the
negligence claims were barred. The Court found that the library “purchased a complete
renovation and expansion of all the components of its facility as part of a single,
highly-integrated transaction.” Id. at 731. Therefore, “for purposes of the other property
rule, the product or service that the Library purchased was the renovated and expanded
library facility itself.” Id. The Court specifically distinguished the case before it from
that in Gunkel. “The contrast with this case is clear. Here the product or service
purchased from the Defendants was an integral part of the entire library construction
project, not independent from it. Any damages alleged to have resulted from the
Defendants’ negligence were to the ‘product’ the Library purchased, not to ‘other
property.’” Id. at 732. Thus, where property is provided or serviced by a defendant in
the same transaction, as an integrated whole, the property is not considered “other
property” for purposes of the economic loss doctrine. Id.
The case at bar is much more akin to Indianapolis than to Gunkel. Like in
Indianapolis, here parties’ agreements contemplated service to the press as a whole, and
therefore the “other property” exception does not apply. While plaintiffs argue that the

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parties’ transaction was limited to defendants’ replacement of the press pumps, this
argument is belied by the allegations in their complaint. Plaintiffs specifically allege that
defendants were hired to clean the debris in the press, pursuant to quote 160317A.
According to plaintiffs, defendants’ negligent performance of their contract to clean the
press caused the press to seize and become inoperable. Thus, in their negligence claim,
plaintiffs seek a tort remedy for deficient contract performance. This they cannot do.
Plaintiffs are precluded from recovering in tort for their disappointed contractual
expectations.
This holding is consistent with the rational underlying the economic loss
doctrine. “The theory underlying the economic loss doctrine is that the failure of a
product or service to live up to expectations is best relegated to contract law and to
warranty either express or implied. The buyer and seller are able to allocate these risks
and price the product or service accordingly.” Gunkel, 822 N.E.2d at 155. “Allowing a
buyer to recover in tort where he has suffered only economic loss allows him to
circumvent the seller’s effective limitation or exclusion of warranties under the U.C.C.,
and subjects manufacturers to liability for damages of unknown and unlimited scope.”
Id. (quoting Reed v. Cent. Soya Co., 621 N.E.2d 1069, 1074 (Ind. 1993), opinion modified on
reh’g, 644 N.E.2d 84 (Ind. 1994)). Here, the parties contemplated defendants’ service of
the press as a whole and therefore the parties were in a position to allocate the risks and
price of the service at the time they entered into the agreements. Thus, it is contract law,
rather than tort law, that governs the present dispute.

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IV.

CONCLUSION

For these reasons, the court GRANTS defendants’ partial motion to dismiss
(DE # 5), and dismisses Count I: Negligence; Count IV: Negligence Per Se; and Count
VI: Strict Liability, of plaintiffs’ complaint.
SO ORDERED.
Date: August 14, 2018
s/James T. Moody______________
JUDGE JAMES T. MOODY
UNITED STATES DISTRICT

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