Naz, LLC v. Philips Healthcare

Filing 90

ORDER AND REASONS: ORDERED that the 51 Rule 12(c) motion is DENIED; and the 61 Rule 12(b)(6) motion is GRANTED in part (insofar as it seeks to dismiss punitive, exemplary and non-pecuniary damages) and DENIED in part (insofar as it seeks to dismiss claims for economic loss damages). Signed by Judge Martin L.C. Feldman on 3/8/2018. (clc)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

NAZ, LLC

CIVIL ACTION

v.

NO. 17-2882

PHILIPS HEALTHCARE, A DIVISION OF
PHILIPS ELECTRONICS NORTH AMERICA CORPORATION

SECTION "F"

ORDER AND REASONS
Before the Court are two motions by the defendant: (1) Rule
12(c) motion to dismiss or, alternatively, Rule 56 motion for
summary

judgment

on

plaintiffs’

contract

claim

for

property

damage; and (2) Rule 12(b)(6) motion to dismiss certain damages.
For the reasons that follow, the Rule 12(c) motion is DENIED; and
the Rule 12(b)(6) motion is GRANTED in part (insofar as it seeks
to dismiss punitive, exemplary, and non-pecuniary damages) and
DENIED in part (insofar as it seeks to dismiss claims for economic
loss damages).
Background
This litigation arises from a medical facility’s purchase of
allegedly

faulty

MRI

equipment,

the

manufacturer’s

allegedly

shoddy installation and service of the MRI equipment, as well as
1

its failure to provide the purchaser with the “complete package”
including the hardware and software components that should have
been delivered when the MRI equipment was installed.
This extensive factual summary is drawn from the allegations
of the amended complaint.

Philips Healthcare, a Division of

Philips Electronics North America Corporation (Philips), designs,
manufactures,

tests,

markets,

sells,

installs,

and

services

medical and diagnostic equipment, including the Ingenia 3.0T Omega
MRI. 1

Philips Medical Capital (PMC) is the financing arm of

Philips, but Philips leads its customers to believe that Philips
controls the financing terms of its equipment sales in order to
coax sales.
NAZ,

LLC

owns

Metairie,

Louisiana.

Neuro

the

is

a

medical
Advanced

operational

facility

on

Kingman

Neurodiagnostic

entity

whose

Street

Center,

employees

Inc.

operate

in
Ad
the

diagnostic equipment and service and treat the patients who undergo
diagnostic testing. The medical facility at 2909 Kingman Street
was constructed to expand the existing medical center (2905 Kingman
St.) with the addition of a state of the art neuroscience center

MRI, or magnetic resonance imaging, is non-invasive imaging
technology that, using a large magnet and radio waves, produces
three-dimensional detailed anatomical images or organs and
structures inside the body.
2

1

and ambulatory surgery center.

Critical to this expansion, the

neuroscience center was to house an Ingenia 3.0T Omega MRI. Dr.
Morteza Shamsnia, as principal of NAZ and Ad Neuro, decided that
a new, state of the art 3T MRI would provide better services to
patients, would produce much higher quality MR images, would allow
vast expansion of his research into subjects such as autism,
dementia, Alzheimer’s disease, concussions, post-traumatic stress
disorder.

Dr. Shamsnia decided the proper computer hardware and

software equipment would expand the number and geographical reach
of services, and thereby increase NAZ’s and Ad Neuro’s revenue and
profits.
After research and discussions with various manufacturers,
Dr. Shamsnia, on behalf of NAZ and Ad Neuro, decided to purchase
the Philips Ingenia 3.0T Omega MRI neurological complete package.
This complete package was crafted to serve NAZ’s, Ad Neuro’s, and
Dr. Shamsnia’s particular purposes for use of the machine. Philips
marketed its product with promises and representations that the
MRI package was the equipment needed to achieve the particular
purposes sought by Dr. Shamsnia on behalf of NAZ and Ad Neuro.
Negotiations between Philips and Dr. Shamsnia continued in an
attempt to reach an agreement on the sale terms and conditions and
on the services, instructions, and recommendations by Philips.
3

While the negotiations continued, because of the delays, Philips,
NAZ, and Ad Neuro agreed that Philips would deliver the Ingenia
MRI package, and Dr. Shamsnia on behalf of NAZ and Ad Neuro agreed
to

follow

Philips’

experts’

instructions

and

recommendations

regarding installation and services.
On December 22, 2014, the Philips’ team released the MRI
package to NAZ and Ad Neuro and represented that it was safe for
patient use.

At that time, Philips began to request monthly

payments on the MRI package.

Dr. Shamsnia, on behalf of NAZ, began

making payments to Philips’ financing arm, PMC.

NAZ and Ad Neuro

hired a board certified MRI technician, who was sent to Philips’
headquarters in Cleveland, Ohio to receive training on the 3T
Philips MRI before January 5, 2015.
The MRI use on patients and volunteers began on January 5,
2015 and continued for only four days.

When the technician

returned on January 12, 2015, the technician noted improper signals
during calibration as well as gaps and separation of the covers on
the MRI unit.

Immediately, she notified Philips engineers.

That

afternoon, a Philips engineer made a site visit and noticed these
changes.

When the engineer opened the bottom cover of the MRI

unit, it revealed a significant, clear shift and sliding of the
vibration pads from their originally installed location.
4

The MRI

unit was inoperable and service was required to render it safe for
operation.
Philips agreed to service the MRI unit, which was tendered to
Philips’ engineering team for modifications and repairs.

On

January 13, 2015, Philips’ senior engineers arrived at the facility
and discovered that the MRI had moved inches from where Philips’
engineers had originally installed it.

The engineers inquired

about the possibility of an earthquake as the explanation for the
movement.

After inspecting the unit, the engineers evacuated the

facility based on their concern that the unit might explode.

They

then “quenched” the MRI, a process involving de-energizing the MRI
and discharging it of all of the helium gas in the MRI system; the
helium was released through a vent pipe on the roof.

The MRI was

completely inoperable.
Two

days

later,

one

of

NAZ’s

and

Ad

Neuro’s

employees

discovered that water from the prior night’s heavy rainfall had
entered through the roof and flooded the floors, walls, and ceiling
of the MRI room, as well as the floors of the surrounding rooms.
It was later determined that the carelessly executed quenching
process caused an opening in the roof through which the water
entered the facility.

NAZ and Ad Neuro paid $850,000 to repair

the damage.
5

Even after months of communication, Philips’ experts could
not determine the cause of the MRI’s malfunction.

NAZ and Ad Neuro

had to hire its own experts at its own expense.

NAZ’s and Ad

Neuro’s experts determined that the cause of the malfunction was
the movement of the MRI in normal operation; the support system
for

the

MRI

equipment

was

inadequate,

which

caused

the

approximately 4,600 kilogram (10,000+ pound) magnet to move while
the MRI was being used.

When Philips was notified of this

discovery, it admitted that the support system it had recommended
and installed was neither suitable nor safe.
NAZ and Ad Neuro then spent more time and money to obtain
additional equipment to repair the problem caused by Philips.

The

parties

the

agreed

that

this

remedial

work

was

subject

to

oversight, direction, control, and approval of Philips’ engineers
and done according to Philips’ specifications and modifications.
These included additional modifications to the door and the room
in which the MRI was housed.

Given the continuing inspections,

troubleshooting, repairs, reinstallation, and testing, the MRI
equipment was not re-activated until after April 2016.
Because the continuing repair, modification, reinstallation,
and redelivery of the MRI equipment took so long, it was not until
sometime after April 2016 that NAZ and Ad Neuro discovered that
6

the computer software and hardware package component that should
have been installed with the MRI equipment had not been installed.
Because the software and hardware component of the MRI package was
central to NAZ’s and Ad Neuro’s agreement to purchase the MRI
equipment from Philips at the particular price agreed upon, and
because the computer component has not been delivered, NAZ and Ad
Neuro claim that Philips has failed to deliver the MRI package it
purchased.

NAZ and Ad Neuro claim that Philips’ failure to

properly install and configure the MRI equipment and because of
the structural alterations of the building caused by Philips’
actions, an application to the appropriate governmental agency for
approval of the ambulatory surgery center cannot be initiated by
NAZ and Ad Neuro, which has resulted in loss of use and profits.
To

operate

the

MRI

equipment

for

clinical

use,

Philips

required NAZ and Ad Neuro to complete advance training, which did
not occur until after May 2016.

Certification for clinical use of

the MRI equipment by the American College of Radiology was not
obtained until August 2016.
On April 4, 2017, NAZ, LLC sued Philips Healthcare, alleging
gross fault (because, as a manufacturer of highly complex medical
diagnostic equipment, Philips should be held to a heightened
standard of care from which Philips grossly deviated) and several
7

breach of contract causes of action: breach of obligation to
provide a complete system that would fit NAZ’s particular purposes
of which Philips was aware, in violation of Louisiana Civil Code
article

2524;

bad

faith

breach

of

contract

in

violation

of

Louisiana Civil Code article 1997; bad faith seller in redhibition,
in violation of Louisiana Civil Code article 2520; failure to make
timely delivery, in violation of Louisiana Civil Code article 2485;
and breach of installation and service agreements.
recover

the

following

damages:

purchase

price

NAZ seeks to
and

expenses

occasioned by the sale; loss of business with respect to use of
the MRI package; loss of business with respect to use of NAZ’s
surgery center; loss of profits with respect to use of the MRI
package; loss of profits with respect to use of plaintiff’s surgery
center; loss of goodwill; costs and expenses incurred in relation
to damages to the facility caused by the quenching of the MRI;
loss of intellectual gratification and physical enjoyment of the
MRI and ambulatory surgery center; inconvenience; financing costs
and

interest;

costs

incurred

to

mitigate

damages

and

costs

associated with repairs and testing of the MRI and MRI room; costs
incurred to mitigate damages or costs associated with repairs to
and testing of the MRI and MRI room; costs incurred to preserve
the MRI and related equipment; depreciation; overhead costs and
expenses; in the event of rescission, return of the purchase price
8

with interest from the time of the sale and all expenses incurred
as a result of the sale; attorney’s fees and litigation costs; and
any and all penalties, punitive or exemplary damages, fines, fees,
including treble damages afforded under Louisiana law.
On

June

12,

2017,

statement

regarding

determine

subject

the

matter

Philips
LLC

moved

for

plaintiff’s

jurisdiction.

a

more

members’

Philips

definitive
identity

also

moved

to
to

dismiss any claims arising from an alleged contract of sale, and
alternatively sought a more definite statement of those claims. On
July 26, 2017, the Court granted the motion in part, ordering the
plaintiff to amend the complaint to identify the citizenship of
the plaintiff’s members; the Court denied the motion in part
insofar as Philips sought to dismiss breach of contract claims and
sought a more definitive statement. On November 2, 2017, the
plaintiff filed an amended complaint to add Ad Neuro as plaintiff
and to clarify Ad Neuro’s relationship to NAZ. The defendant now
moves to dismiss plaintiffs’ $850,000 claim for property damage
arising from the allegedly botched MRI repair and moves to dismiss
plaintiffs’ claims for punitive, exemplary, non-pecuniary, and
duplicitous economic loss damages.

9

I.
A.
Rule 12(b)(6) of the Federal Rules of Civil Procedure allows
a party to move for dismissal of a complaint for failure to state
a claim upon which relief can be granted.

Such a motion is rarely

granted because it is viewed with disfavor.

See Lowrey v. Tex. A

& M Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997) (quoting Kaiser
Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc., 677 F.2d
1045, 1050 (5th Cir. 1982)).
Under Rule 8(a)(2) of the Federal Rules of Civil Procedure,
a pleading must contain a "short and plain statement of the claim
showing that the pleader is entitled to relief."

Ashcroft v.

Iqbal, 556 U.S. 662, 678-79 (2009)(citing Fed. R. Civ. P. 8).
"[T]he

pleading

'detailed

factual

standard

Rule

8

allegations,'

announces

but

it

does

demands

not
more

require
than

an

unadorned, the-defendant-unlawfully-harmed-me accusation." Id. at
678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
In considering a Rule 12(b)(6) motion, the Court “accept[s]
all well-pleaded facts as true and view[s] all facts in the light
most favorable to the plaintiff.”

See Thompson v. City of Waco,

Texas, 764 F.3d 500, 502 (5th Cir. 2014) (citing Doe ex rel. Magee
v. Covington Cnty. Sch. Dist. ex rel. Keys, 675 F.3d 849, 854 (5th
10

Cir. 2012)(en banc)).

But, in deciding whether dismissal is

warranted, the Court will not accept conclusory allegations in the
complaint as true.

Id. at 502-03 (citing Iqbal, 556 U.S. at 678).

To survive dismissal, “‘a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that
is plausible on its face.’” Gonzalez v. Kay, 577 F.3d 600, 603
(5th Cir. 2009)(quoting Iqbal, 556 U.S. at 678)(internal quotation
marks omitted). “Factual allegations must be enough to raise a
right to relief above the speculative level, on the assumption
that all the allegations in the complaint are true (even if
doubtful in fact).”
footnote omitted).

Twombly, 550 U.S. at 555 (citations and
“A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw the
reasonable

inference

misconduct alleged.”

that

the

defendant

is

liable

for

the

Iqbal, 556 U.S. at 678 (“The plausibility

standard is not akin to a ‘probability requirement,’ but it asks
for more than a sheer possibility that a defendant has acted
unlawfully.”).

This is a “context-specific task that requires the

reviewing court to draw on its judicial experience and common
sense.”

Id. at 679. “Where a complaint pleads facts that are

merely consistent with a defendant’s liability, it stops short of
the line between possibility and plausibility of entitlement to
relief.” Id. at 678 (internal quotations omitted) (citing Twombly,
11

550 U.S. at 557).

“[A] plaintiff’s obligation to provide the

‘grounds’ of his ‘entitle[ment] to relief’”, thus, “requires more
than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.”

Twombly, 550 U.S. at

555 (alteration in original) (citation omitted).
Finally, “[w]hen reviewing a motion to dismiss, a district
court ‘must consider the complaint in its entirety, as well as
other sources ordinarily examined when ruling on Rule 12(b)(6)
motions to dismiss, in particular, documents incorporated into the
complaint by reference, and matters of which a court may take
judicial notice.”

Funk v. Stryker Corp., 631 F.3d 777, 783 (5th

Cir. 2011) (quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 322 (2007)).
B.
Federal Rule of Civil Procedure 12(c) permits any party to
move for a judgment on the pleadings, provided the motion is made
early enough to avoid delaying trial.

A court may grant a Rule

12(c) motion only if the pleadings evince no disputes of genuine
material fact and questions of law alone remain.

Great Plains

Trust Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 312
(5th Cir. 2002) (citations omitted).

Courts should thus adhere to

the same standard in reviewing a 12(c) motion as they do in
12

reviewing motions to dismiss under Rule 12(b)(6), accepting all
well-pleaded facts as true and drawing all factual inferences in
favor of the non-movant. See id. at 313 n.8;

Alexander v. City of

Round Rock, 854 F.3d 298, 303 (5th Cir. 2017) (citing Thompson,
764 F.3d at 502; Stokes v. Gann, 498 F.3d 483, 484 (5th Cir.
2007)); Doe v. Myspace, Inc., 528 F.3d 413, 418 (5th Cir. 2008);
5C CHARLES ALAN WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE

AND

PROCEDURE §

1368 (3d ed. 2004).
The determining issue is not whether the plaintiff will
ultimately prevail on the merits, but whether he is entitled
to offer evidence to support his claim. Therefore, this court
will not dismiss a plaintiff’s claim, “unless the plaintiff
will not be entitled to relief under any set of facts or any
possible theory that he could prove consistent with the
allegations in his complaint.”
Priester v. Lowndes Cty., 354 F.3d 414, 418-19 (5th Cir. 2004)
(citing and quoting Jones v. Greninger, 188 F.3d 322, 324 (5th
Cir. 1999)).
Just like when it reviews a motion to dismiss under Rule
12(b)(6), when reviewing a Rule 12(c) motion, a district court
must

consider

the

pleadings,

any

documents

the

pleadings

incorporate by reference, and matters of which the court may take
judicial notice.

Funk, 631 F.3d at 783.

13

C.
Federal Rule of Civil Procedure 56 instructs that summary
judgment is proper if the record discloses no genuine dispute as
to any material fact such that the moving party is entitled to
judgment as a matter of law.

No genuine dispute of fact exists if

the record taken as a whole could not lead a rational trier of
fact to find for the non-moving party. See Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

A genuine

dispute of fact exists only "if the evidence is such that a
reasonable jury could return a verdict for the non-moving party."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

The

mere argued existence of a factual dispute does not defeat an
otherwise properly supported motion.

See id.

Ultimately, "[i]f

the evidence is merely colorable . . . or is not significantly
probative," summary judgment is appropriate. Id. at 249 (citations
omitted); see also Hathaway v. Bazany, 507 F.3d 312, 319 (5th Cir.
2007)(internal

quotation

marks

and

citation

omitted)

(“[T]he

nonmoving party cannot defeat summary judgment with conclusory
allegations, unsubstantiated assertions, or only a scintilla of
evidence.”).
Summary judgment is also proper if the party opposing the
motion fails to establish an essential element of a claim.
14

See

Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
regard,

the

non-moving

party

must

adduce

competent

In this
evidence,

including but not limited to sworn affidavits and depositions, to
buttress his claims.

See Donaghey v. Ocean Drilling & Exploration

Co., 974 F.2d 646, 649 (5th Cir. 1992).

However, affidavits or

pleadings which contradict earlier deposition testimony cannot
create a genuine issue of material fact sufficient to preclude an
entry of summary judgment.

See S.W.S. Erectors, Inc. v. Infax,

Inc., 72 F.3d 489, 495 (5th Cir. 1996); Thurman v. Sears, Roebuck
& Co., 952 F.2d 128, 137 n. 23 (5th Cir. 1992).
In deciding whether a fact issue exists, courts must view the
facts and draw reasonable inferences in the light most favorable
to the nonmoving party.
(citations omitted).

Scott v. Harris, 550 U.S. 372, 378 (2007)
Although the Court must "resolve factual

controversies in favor of the nonmoving party," it must do so "only
where there is an actual controversy, that is, when both parties
have submitted evidence of contradictory facts."

Antoine v. First

Student,

2013)

Inc.,

713

F.3d

824,

830

(5th

quotation marks and citation omitted).

15

Cir.

(internal

II.
A.
First, Philips seeks to dismiss the plaintiffs’ property
damage

claim

arising

from

the

allegedly

botched

repair,

or,

alternatively, summary relief, on the ground that the plaintiffs’
claim has prescribed. Because the allegedly defective MRI caused
the water damage to the plaintiffs’ building, the defendant argues,
the Louisiana Products Liability Act (LPLA) precludes any other
theory of liability that would extend the one-year delictual
prescriptive period. Therefore, the claim prescribed on January
18, 2016, one year since January 15, 2015, the date plaintiffs
allege to have discovered the water damage. In support of its
motion for summary judgment, the defendants submit an email from
Dr. Shamsnia to Philips dated December 4, 2015, in which he states
the quenching caused the MRI unit to move and allowed rain to enter
the building. At the latest, the defendants contend that the
plaintiffs’ claim prescribed on December 4, 2016, well before suit
was filed on April 4, 2017.
The plaintiffs counter that the property damage was caused by
Philips’s engineers’ conduct—not the MRI machine itself—and that
the

engineers’

actions

breached

installation

and

service

agreements with Philips. Accordingly, the plaintiffs submit that
16

this property damage claim is properly characterized as a breach
of contract, beyond the scope of the LPLA, and subject to a 10year prescriptive period, which renders the action timely. The
plaintiffs

also

contend

that

summary

judgment

is

premature

because, while the parties acknowledge a contractual relationship,
the parties dispute what obligations comprised it. The Court finds
that the plaintiffs have plausibly stated a breach of contract
claim that is not facially prescribed. The defendant’s request for
summary judgment is premature, considering only one email has been
filed into the record to facilitate resolution of the prescription
issue on the merits.
B.
When

subject

matter

jurisdiction

is

based

on

diversity,

federal courts apply the substantive law of the forum state. Boyett
v. Redland Ins. Co., 741 F.3d 604, 607 (5th Cir. 2014). Here,
Louisiana’s prescriptive periods govern. See id. For delictual
actions, the prescriptive period is one year from the day injury
or

damage

is

sustained.

La.

C.C.

art.

3492.

However,

the

“prescriptive period does not begin to run until the plaintiff has
actual or constructive knowledge of the tortious act, the damage,
and the causal relationship between the tortious act and the
damage.” Aucoin v. Amneal Pharm., LLC., No. 11-1275, 2012 WL
17

2990697, at *4 (E.D. La. July 20, 2012) (quoting Knaps v. B & B
Chem. Co., 828 F.2d 1138, 1139 (5th Cir. 1987)).

For contract

actions, the prescriptive period is 10 years, running from the day
an obligor breaches his obligation. McClellan v. Premier Nissan,
L.L.C., 14-726, p. 4 (La. App. 5 Cir. 2/11/15); 167 So. 3d 934,
936; Gen. Accident Ins. Co. of Am. v. Aggreko, LLC., No. 11-1682,
2012 WL 6569332, at *5 (W.D. La. Dec. 17, 2012) (citing La. C.C.
art. 3499); see also Stalter v. Arthur J. Gallagher Risk Mgmt.
Servs., Inc., No. 16-12786, 2017 WL 2189816, at *2 (E.D. La. May
18, 2017). Where a defendant’s actions support a claim in both
tort and contract, a plaintiff is free to pursue either theory of
recovery. See Ill. Cent. R. Co. v. New Orleans Terminal Co., 143
La.

467,

473

(1918).

“The

applicable

prescriptive

period

is

determined by the character of the action as it is stated in the
complaint.” Stalter, 2017 WL 2189816, at *2 (citing Fishbein v.
State ex rel. La. State Univ. Health Scis. Ctr., 2004-2482, pp. 67 (La. 4/12/05); 898 So. 2d 1260, 1265).
Generally, the party asserting that a claim has prescribed
bears the burden of proof. Peterson v. C. R. Bard, Inc., 654 F.
App’x 667, 670 n. 2 (5th Cir. 2016) (quoting In re Brewer, 20050666, p. 4 (La. App. 1 Cir. 5/5/06); 934 So. 2d 823, 826)).
However, when a complaint reveals on its face that the prescriptive
period has lapsed, the burden shifts to the plaintiff. Id.
18

C.
The LPLA provides “the exclusive theories of liability for
manufacturers for damage caused by their products.” La. Rev. Stat.
§ 9:2800.52. “Damage” is defined as “all damage caused by a
product, including survival and wrongful death damages, for which
Civil Code Articles 2315, 2315.1, and 2315.2 allow recovery,” 2
including “damage to the product itself and economic loss arising
from a deficiency in or loss of use of the product only to the
extent that Chapter 9 of Title VII of Book III of the Civil Code,
entitled ‘Redhibition,’ does not allow recovery for such damage or
economic loss,” 3 and excluding attorneys’ fees. La. Rev. Stat. §
9:2800.53 (5). In other words, a plaintiff must bring an action
under the LPLA to recover all damages caused by a product, except
for damage to the product itself and economic loss sought under
the Chapter 9 Redhibition articles. See generally John Kennedy, A
Primer on the Louisiana Products Liability Act, 49 LA. L. REV. 565

La. C.C. art. 2315 provides for “Liability for acts causing
damages;” art. 2315.1 provides the “Survival action;” and art.
2315.2 provides the “Wrongful death action.” These articles
establish the foundation for Louisiana tort liability. 12 WILLIAM
E. CRAWFORD, LA. CIVIL LAW TREATISE § 1:10 (2d ed. 2017).
3 Chapter 9 of Title VII of Book III of the Civil Code, entitled
“Redhibition,” provides a buyer several causes of action against
the seller when the seller breaches the warranty against
redhibitory defects (art. 2520), the warranty of fitness for use
(art. 2542), and the obligation to deliver conforming things (art.
2529). C-Innovation, LLC v. Norddeutsche Seekabelewerke GMBH, No.
10-4441, 2013 WL 990026, at *4 (E.D. La. Mar. 13, 2013).
19
2

(1989). Grappling with the plain language of the statute and
comments to the Civil Code, courts have struggled to define the
scope

of

this

carve-out.

See,

e.g.,

C-Innovation,

LLC

v.

Norddeutsche Seekabelewerke GMBH, No. 10-4441, 2013 WL 990026, at
*4-5 (E.D. La. Mar. 13, 2013); Hollybrook Cottonseed Processing,
LLC v. Carver, Inc. (Hollybrook I), No. 09-0750, 2010 WL 892869,
at

*6-8

(W.D.

La.

Mar.

11,

2010).

Nevertheless,

there

is

a

consensus that the LPLA does not preclude a redhibitory action
against the manufacturer seeking economic loss damages. See, e.g.,
Am. Home Assurance Co. v. Oceaneering Int’l, Inc., 609 F. App’x
171, 176-78 (5th Cir. 2015); Chevron USA, Inc. v. Aker Maritime,
Inc., 604 F.3d 888, 900 (5th Cir. 2010); Hollybrook Cottonseed
Processing, LLC v. Carver, Inc. (Hollybrook II), No. 09-0750, 2010
WL 2195685, at *4-5 (W.D. La. May 28, 2010); Hollybrook I, 2010 WL
892869, at *6-7; Aucoin v. S. Quality Homes, LLC, 2007-1014, p. 7
n.8 (La. 2/26/08); 984 So. 2d 685, 691 n.8.
Where a plaintiff seeks to recover against the manufacturer
for damages other than economic loss in redhibition, the cause of
the damage determines the LPLA’s preclusive effect. Hollybrook II,
2010 WL 2195685, at *4; see also Hollybrook I, 2010 WL 892869, at
*7. Where a plaintiff does not seek damages caused by the product
itself,

but,

rather,

seeks

damages

based

on

contractual

obligations beyond the scope of the express or implied warranty
20

for redhibition, courts have found that the LPLA does not preclude
such an action. See, e.g., C-Innovation LLC, 2013 WL 990026, at
*6-7 (denying a motion to dismiss a fraud-based contractual claim
against the manufacturer, reasoning that “[t]he economic damages
C-Innovation

is

seeking

are

not

by

virtue

of

an

action

in

redhibition and are not caused by the product itself”); Jack B.
Harper Contractor, Inc. v. United Fiberglass of Am., Inc. (Harper
II), No. 11-20, 2013 WL 12238500, at *2, *7 (E.D. La. Jan. 30,
2013) (noting that the jury found the manufacturer liable for
breach

of

a

contractual

obligation

to

provide

installation

instructions in addition to liability under two prongs of the
LPLA); Jack B. Harper Contractor, Inc. v. United Fiberglass of
Am., Inc. (Harper I), No. 11-20, 2012 WL 2087394, at *2 (E.D. La.
June 8, 2012) (denying summary judgment due to “an issue of fact
as to whether Harper’s claims fall solely within the LPLA”);
Hollybrook I, 2010 WL 892869, at *7 (granting summary judgment in
the defendant’s favor on breach of contract claims arising from
allegedly defective equipment, but denying defendant’s request for
summary judgment as to plaintiff’s claims sounding in contract,
where the contract called for providing equipment to process a
certain

daily

capacity

of

cottonseed,

as

well

as

“certain

engineering, repair, and training services”), accord Hollybrook
II, 2010 WL 2195685, at *3 (clarifying that the court in Hollybrook
21

I found “that the LPLA precludes Hollybrook’s general breach of
contract claims to the extent they seek damages caused by Carver’s
products”) (emphasis added).
To determine whether the LPLA bars a particular breach of
contract cause of action, the focus is on whether the plaintiff
alleges that the damage was caused by the manufacturer’s product:
While the exclusivity provision of the LPLA leaves
no doubt breach of contract claims against manufacturers
for damages caused by their products are subsumed by the
LPLA, in cases where a specific part of the injury is
caused only by the breach of contract, and not by the
product itself, a buyer might be able to bring both types
of claims against a manufacturer. . . . [I]n the limited
circumstances where a buyer sues a manufacturer for
economic damages not covered in redhibition and not
caused by the product itself, it may bring a breach of
contract claim for those damages, on its own or in
addition to a claim for other damages under the LPLA or
redhibition.

Hollybrook I, 2010 WL 892869, at *7. Thus, when the source of
damage is not the product itself but, for instance, a fraudulent
misrepresentation made by the manufacturer, or a failure to provide
services in breach of a contract separate and apart from the
contract

of

sale,

a

plaintiff

may

bring

this

distinct

claim

alongside or independently from an LPLA claim. See C-Innovation,
LLC, 2013 WL 990026, at *6-7; Hollybrook I, 2010 WL 892869, at *7.
In this context, the LPLA has not precluded a breach of a contract
to provide repairs, nor a claim for negligent repair against a
22

manufacturer that would be vicariously liable for its employees’
negligent repair. Hollybrook I, 2010 WL 892869, at *7; see Debose
v. Sam’s East, Inc., No. 09-05, 2010 WL 11468975, at *1-2, *4 n.1
(M.D. La. Sept. 3, 2010).
On the other hand, when damage is caused by the product, the
LPLA applies to preclude all actions (besides the Chapter 9 carveout), regardless of the theory of liability. Hollybrook II, 2010
WL 2195685, at *4-5; see also Am. Zurich Ins. Co. v. Caterpillar,
Inc., 2012-270, pp. 6-7 (La. App. 3 Cir. 10/3/12); 99 So. 3d 739,
743-44 (holding that the LPLA precluded a breach of contract claim
where “no claim relative to the service contract . . . would
withstand distinction from a straight-forward defective product
claim”). In this context, the LPLA has precluded claims for breach
of contract and negligent repair. Stroderd v. Yamaha Motor Corp.,
U.S.A., No. 04-3040, 2005 WL 2037419, at *2 (E.D. La. Aug. 4,
2005). Moreover, the buyer may not recover damage to other property
besides

the

product

itself

that

was

caused

by

the

defective

product. Chevron USA, Inc., 604 F.3d at 900-01.
D.
In the amended complaint, the plaintiffs allege that “the
actions of the Philips’ engineers caused an opening in the roof
through which the water came into the facility.” Specifically, the
23

plaintiffs allege that Philips’ engineers’ actions support a cause
of action for “Breach of Installation and Service Agreements”:
71. Defendant represented to Plaintiffs that it had the
special, superior, and/or professional skill to properly
direct and instruct the Plaintiffs as to the location
where the MRI should be placed, the configuration of
that room, and the equipment and components that would
result in the safe and proper operation of the MRI for
the purposes for which the Plaintiffs intended.
i. Plaintiffs and Defendant agreed that Defendant would
uphold the obligation to properly install and service
the MRI package safely and with necessary skill and
expertise required to perform those obligations.
Defendant grossly failed to perform those obligations
with the necessary skill and expertise required to do
so.
ii. Defendant’s failure to perform these obligations to
the standards it was required to uphold was a breach of
these agreements, which breach resulted in damages and
lost profits to Plaintiffs.
iii. In January 2015, the parties entered into an
additional
agreement
whereby
Defendant
would
investigate, determine, correct and reinstall the MRI
package to repair the defect, including to prevent
movement of the MRI magnet. Plaintiffs relied on
Defendant’s skill and expertise to perform these
obligations.
iv. In performing these obligations, Defendant’s fault
and/or gross fault caused water to seep into the building
and caused damages and further delay in preparing the
MRI for operation in accordance with its intended
purposes, resulting in further damages and lost profits
to Plaintiffs.
v. Defendant further failed to fulfill its obligations
as a skilled expert to determine the source of the defect
and problems, and complete the necessary reinstallation
to allow Plaintiffs to operate the MRI for its intended
purposes. Defendant breached its obligation to provide
personnel capable of installing the MRI equipment and
capable of diagnosing and correcting the defects and
24

problems associated with the MRI equipment. Defendant’s
failure to fulfill these obligations resulted in
Plaintiffs’ inability to reactivate the MRI until April
2016; and, but for Plaintiffs being forced to hire their
own experts at their own expense, the MRI package would
have been inoperable for a much longer period of time.

The defendant characterizes the plaintiffs’ claim for water damage
to their facility as damage to “other property” as defined in
Chevron USA v. Aker Maritime, Inc., 604 F.3d 888, 900-01 (5th Cir.
2010), which can only be recovered in tort under the LPLA. Because
the one-year prescriptive period for the tort claim has run, the
defendant argues, the plaintiffs’ claim for this property damage
has facially prescribed. The Court disagrees.
Chevron

is

distinguishable.

There,

the

manufacturer

of

defective bolts did not perform the repairs nor have a separate
contract with the buyer. Chevron, 604 F.3d at 890-91. But see id.
at 902 (reversing the dismissal of Chevron’s breach of contract
claims

against

explanation).

the

manufacturer

Chevron

sought

and

to

remanding

recover

for

damages

further

from

the

manufacturer under the implied contract theory of redhibition. Id.
at 899.

Here, the Court must take as true the plaintiffs’

allegations, and the plaintiffs allege that the parties entered
into

both

installation

and

service

agreements,

that

Philips’

engineers negligently left a hole in the roof while performing
25

obligations to install and service the MRI, and that Philips
thereby breached the parties’ agreement, causing property damage.
Viewing the well pleaded facts as true and in the light most
favorable to the plaintiffs, Philips breached installation and
service agreements separate and apart from the contract of sale
and redhibitory warranty. That is, the plaintiffs allege that
Philips’ engineers breached their obligation to repair the MRI and
that

the

engineers’

actions

caused

property

damage.

The

plaintiffs’ claims are more like those in Hollybrook I, where a
separate contract for services constituted an additional claim to
any LPLA claim. Hollybrook I, 2010 WL 892869, at *7; see also
Hollybrook II, 2010 WL 2195685, at *3. Although the defendant
suggests Hollybrook II holds that the LPLA subsumes all claims
against

the

manufacturer

based

on

contractual

theories

of

liability, the defendant fails to recognize that such reasoning
only applies to damages caused by the product. Hollybrook II did
not disturb Hollybrook I’s finding that a plaintiff may bring a
breach of contract claim against the manufacturer where “a buyer
sues a manufacturer for economic damages not covered in redhibition
and not caused by the product itself.” Hollybrook I, 2010 WL
892869, at *7; see Hollybrook II, 2010 WL 2195685, at *3 (limiting
discussion of the LPLA’s exclusion of the plaintiff’s “general
breach of contract claims to the extent they seek damages caused
26

by Carver's products”) (emphasis added). Furthermore, the district
court in C-Innovation, LLC cited Hollybrook I to support its
finding

that

contract

the

claim

LPLA
against

did

not

a

subsume

a

buyer’s

manufacturer,

which

fraud-based
compels

the

conclusion that the LPLA does not prevent a buyer from bringing
contract claims against a manufacturer where contractual damages
are distinct from damage caused by a product. 2013 WL 990026, at
*6 (quoting and citing Hollybrook I, 2010 WL 892869, at *6-8); see
also Harper II, 2013 WL 12238500, at *2, *7 (noting that the jury
found

the

manufacturer

liable

for

breach

of

a

contractual

obligation to provide installation instructions in addition to
liability under two prongs of the LPLA).
Chevron is distinguishable for another reason. The buyer’s
sole argument in Chevron centered on the narrow issue of whether
damages

to

the

characterized

spar,

as

Chevron’s

economic

loss

“other

property,”

recoverable

could

against

be
the

manufacturer of defective bolts under a theory of redhibition. See
id. at 899-901.

Notably, neither party argued whether the damage

to the spar was “damage” as defined by the LPLA; rather, Chevron
narrowly decided that the cost to repair the spar could not be
characterized as economic loss damages. See Am. Home Assur. Co.,
609 F. App’x at 178 (citing Chevron, 604 F.3d 888). Here, the
plaintiffs

allege

that

their

property
27

was

damaged,

not

by

a

redhibitory defect, but by Philips’ breach of the parties’ service
contract. The plaintiffs allege that the manufacturer’s engineers
negligently created a hole in the roof in order to make repairs to
the defective MRI—specifically, to allow for a “quenching” process
to release dangerous levels of radioactive chemicals.

And, they

allege, Philips’ engineers left that hole open overnight, which
allowed

rain

to

enter

and

damage

their

property.

While

the

defendant contends that the “quenching” process itself, without
reference to its technicians’ actions, caused the property damage,
this Court must view the allegations in the light most favorable
to the plaintiffs. Accordingly, at this stage, the Court must
consider the plaintiffs’ allegations that it was not the MRI alone
that caused the plaintiffs to sustain water damage. Philips has
failed

to

persuade

the

Court

that

the

LPLA

precludes

the

plaintiffs’ breach of contract claim where, as here, the plaintiffs
allege that Philips’ engineers caused the damage, not the product.
Of course, the Court does not rule on the merits of the plaintiffs’
breach of contract claim. It is patently premature to consider
summary judgment where the parties dispute the existence of a
contract, and the defendant merely points to a stray email in which
Dr. Shamsnia appears to assert a legal conclusion yet to be proven.
See Harper I, 2012 WL 2087394, at *2.

28

Philips fails to persuade the Court that the plaintiffs’
breach of contract claim relative to the property damage is barred
by the LPLA as a matter of law. Accordingly, Philips’ argument
that this claim is delictual in nature and prescribed must be
rejected at this stage. The plaintiffs characterize the property
damage

claim

as

a

breach

of

contract,

which

calls

for

a

prescriptive period of 10 years running from the alleged breach in
January, 2015, and, thus, the claim has not facially prescribed.
Louisiana case literature distinguishing sales contracts from
other kinds of contracts reinforces this result at this stage of
the

litigation.

Louisiana

courts

have

long

looked

to

the

fundamental obligation of a contract to determine what body of law
governs it.

See Austin’s of Monroe, Inc. v. Brown, 474 So. 2d

1383, 1387-88 (La. App. 2 Cir. 1985); Hunt v. Suares, 9 La. 434,
435-46 (1836); see, e.g., Mouton v. Generac Power Sys., 14-350,
pp. 12-13 (La. App. 3 Cir. 11/5/14); 152 So. 3d 985, 994. If the
fundamental obligation of a contract is a sale (where the parties
consent to transfer ownership of a thing for a price in money),
the contract is governed by the law of sale, and therefore,
redhibition. See Mouton, 14-350 at pp. 12-13; 152 So. 3d at 994;
La. C.C. arts. 2439, 2520, et seq. Any incidental obligations to
do (e.g., to service and install the thing) do not extricate the
contract from Louisiana sales law. See Mouton, 14-350 at pp. 1229

13; 152 So. 3d at 994; La. C.C. art. 1756; 24 DIAN TOOLEY-KNOBLETT &
DAVID GRUNING, LA. CIVIL LAW TREATISE, SALES § 1:10 (Supp. 2017). As a
result, the prescriptive periods and warranties of sale, such as
the warranty against redhibitory defects, apply to breaches of
sales contracts, even when the sale also provides for ancillary
services. See Mouton, 2014-350 at pp. 12-13; 152 So. 3d at 994.
Here, the Court is unable to classify the disputed contract(s)
because neither party submits evidence—or one contract—that would
allow the Court to consider whether the sale of the MRI package
contained merely ancillary obligations to perform installation and
maintenance services, or whether, as plaintiffs allege, separate
service

agreements

formed

additional

obligations.

It

is

also

unknown what the warranty, as the defendant alleges is incorporated
into the Standard Terms and Conditions in the contract of sale,
stipulates, and whether it was effectively waived. See La. C.C.
art. 2548. The Court must view the allegations in the light most
favorable to plaintiffs, and they allege that a separate contract
exists to support a breach of contract claim, which has a 10-year
prescriptive period. Thus, their property damage claim has not
facially prescribed. And, summary judgment is not warranted.

30

III.
In their amended complaint, the plaintiffs allege causes of
action for “gross fault” and breaches of contract. They list 18
categories of damages that they seek to recover. In its second
motion to dismiss, Philips challenges the plaintiffs’ attempt to
recover 10 out of the 18 categories of damages.
A.
Philips contends that, as a matter of law, the plaintiffs may
not

recover

punitive

or

exemplary

damages

or

non-pecuniary

damages. The plaintiffs concede that they are not entitled to
recover such damages. Given that Louisiana law precludes the
plaintiffs’ recovery of punitive or exemplary damages as well as
non-pecuniary damages, 4 the plaintiffs’ claims for the following
categories of damages must be dismissed: Loss of intellectual
gratification and/or physical enjoyment of the MRI and ambulatory

La. C.C. art. 3546 permits punitive or exemplary damages only
when authorized by statute, and La. C.C. art. 1998 permits nonpecuniary damages when the contract, by its nature or by the intent
of the parties, gratifies a non-pecuniary interest. No statute
authorizes punitive or exemplary damages here, and the sale,
service and installation of the MRI package does not gratify a
non-pecuniary interest of the plaintiffs as juridical entities.
See Walle Corp. v. Rockwell Graphics Sys., Inc., No. 90-2163, 1992
WL 245963, at *5 (E.D. La. Sept. 21, 1992).
31
4

surgery center; inconvenience; and any and all penalties, punitive
or exemplary damages, fines, fees, afforded under Louisiana law.
B.
While Philips acknowledges that plaintiffs may bring a claim
for economic loss, Philips contends that the following damages are
impermissibly duplicative of economic loss:
ii. Loss of business with respect to use of the MRI
package;
iii. Loss of business with respect to use of Plaintiffs’
ambulatory surgery center;
iv. Loss of profits with respect to use of the MRI
package;
v. Loss of profits with respect to use of Plaintiffs’
ambulatory surgery center;
vi. Loss of goodwill;
. . . .
xiii. Depreciation;
xiv. Overhead costs and expenses.

The Court disagrees. Philips cites no persuasive or binding law to
suggest

that

plaintiffs

cannot

plead

specific

categories

of

economic loss, nor does Philips challenge plaintiffs’ ability to
recover economic loss generally. Philips’ attempt to convince the
Court to dismiss certain specific alleged damages components as
duplicative, where the Court will not permit duplicative recovery,
elevates form over substance.
32

Accordingly, for the foregoing reasons, IT IS ORDERED: that
the Rule 12(c) motion is DENIED; and the Rule 12(b)(6) motion is
GRANTED in part (insofar as it seeks to dismiss punitive, exemplary
and non-pecuniary damages) and DENIED in part (insofar as it seeks
to dismiss claims for economic loss damages).
New Orleans, Louisiana, March 8, 2018

_____________________________
MARTIN L. C. FELDMAN
UNITED STATES DISTRICT JUDGE

33