Summary: Defendant moved for dismissal, claiming the North Dakota Products Liability Act required dismissal for it as a nonmanufacturing seller. The Court agreed and granted the motion as it related to plaintiff's negligence claim, but denied the motion as to the U.C.C. and contract claims, which it held were not covered by the Products Liability Act.

Case Name: Paracelsus Healthcare v. Philips Electronics
Case Number: A3-00-171
Docket Number: 20
Date Filed: 5/7/01
Nature of Suit:195

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
SOUTHEASTERN DIVISION

MEMORANDUM AND ORDER

I. Introduction

Before the Court is a motion to dismiss by defendant Diagnostic Medical Systems, Inc. (DMS) (doc. # 6). Plaintiff resists the motion (doc. #15). ⁽¹⁾ For the reasons set forth below, the motion is GRANTED IN PART and DENIED IN PART.

II. Background

The following facts appear to be essentially uncontested. Paracelsus purchased a cardiac imaging device known as the Integris H5000 C system. The device was designed, manufactured, and marketed by Philips. Paracelsus had purchased the device not from Philips but from DMS, which also installed and provided training on it. On August 2, 1999, the device overheated and shut down while physicians used it to locate a stint in a patient's heart, forcing them to perform surgery. Paracelsus sued Philips and DMS in state court, alleging breach of various warranties against both and negligence against DMS. Philips then removed the case to this Court - to which DMS consented - and answered.

DMS then filed the instant motion, arguing dismissal is required by N.D. Cent. Code § 28-01.3-04, which generally calls for dismissal of any "product liability action" - a defined term discussed later - against a nonmanufacturing seller if certain conditions are met. Initially, the seller must file an affidavit indicating both that it did not manufacture the product and who did manufacture it; then, the manufacturer must either answer or the time for doing so must elapse. Both of these requirements have happened here. Under the statute, the burden is thus on the plaintiff to show that one of several exceptions preventing dismissal apply. The Court will address this at length below.

III. Analysis

In reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a court "is constrained by a stringent standard." Parnes v. Gateway 2000, Inc., 122 F.3d 539, 545-46 (8th Cir. 1997) (citations omitted). Generally, a complaint should not be dismissed unless the plaintiff can prove no set of facts which would entitle him or her to relief, and a court considering such a motion must accept the allegations in the complaint as true and construe them in plaintiff's favor when making this determination. See Briehl v. General Motors Corp., 172 F.3d 623, 627 (8th Cir. 1999); Midwestern Mach., Inc. v. Northwest Airlines, Inc., 167 F.3d 439, 441 (8th Cir. 1999). However, the motion to dismiss here is made pursuant to a specific statutory authorization, and not Rule 12(b)(6). Therefore, the Court must employ the specific framework set forth by that statute, rather than general Rule 12(b)(6) principles.

The Court begins by reviewing that part of the North Dakota Products Liability Act, N.D. Cent. Code 28-01.3, on which DMS depends for its motion. Enacted as part of a 1993 revision of the Products Liability Act, the statute provides, in relevant part:

1. In any products liability action maintained against a seller of a product who did not manufacture the product, the seller shall upon answering or otherwise pleading file an affidavit certifying the correct identity of the manufacturer of the product allegedly causing the [damages] . . .

2. After the plaintiff has filed a complaint against the manufacturer and the manufacturer has or is required to have answered or otherwise pleaded, the court shall order the dismissal of the claim against the certifying seller, unless the plaintiff can show any of the following:

    a. That the certifying seller exercised some significant control over the design or manufacture of the product . . .

    b. That the certifying seller had actual knowledge of the defect in the product . . . [or]

    c. That the certifying seller created the defect in the product . . .

N.D. Cent. Code. § 28-01.3-04.

As mentioned above, there seems to be no question that the prerequisites of section (1) are met here: Philips has both answered and admitted it manufactured the device, and DMS has filed an affidavit certifying it did not manufacture the device. Thus, assuming that this case is subject to the requirements of the statute, the burden is on Paracelsus to show that DMS fits into one of the subcategories of section (2).

Before addressing Paracelsus' arguments on this matter, however, the Court is concerned that this statute may not, in fact, apply to all the claims at issue. By its very terms, it applies only to a "products liability action." This is a defined term under the definitions section of the Act:

"Product liability action" means any action brought against a manufacturer or seller of a product, regardless of the substantive legal theory or theories upon which the action is brought, for or on account of personal injury, death, or property damage caused by or resulting from the manufacture, construction, design, formula, installation, preparation, assembly, testing, packaging, labeling, or sale of any product, or the failure to warn or protect against a danger or hazard in the use, misuse, or unintended use of any product, or the failure to provide proper instructions for the use of any product.

N.D. Cent. Code § 28-01.3-01(2). This definition is, concededly, quite broad on its face. However, because four of plaintiff's five counts against DMS are predicated not on tort but rather on the U.C.C. or general contract law, theories not generally viewed as "products liability," the Court is leery to dismiss them on this basis.

This concern is supported by several decisions of the North Dakota Supreme Court. Though it has not been called upon to interpret the provisions of the existing Act, the court has interpreted identical provisions the previous version, and these interpretations suggest dismissal is inappropriate as to plaintiff's U.C.C. and contract theories.

First, in Coop. Power Ass'n. v. Westinghouse Elec. Corp., 493 N.W.2d 661, 662 (N.D. 1992), the court concluded a plaintiff may not sue in tort when the sole damage alleged is to the defective product itself, a rule known as the "economic loss doctrine." In so doing, the court rejected an argument that the definition of "products liability action" in the North Dakota Products Liability Act - a definition identical to that in the 1993 Act - indicated an intent to undermine the economic loss doctrine. Id. at 666. The court wrote:

[Such an] interpretation of that statute would undermine the comprehensive body of law for sales transactions in Article 2 of the Uniform Commercial Code. Tort law was not intended to undermine the Uniform Commercial Code. It is an elementary rule of statutory construction that we construe related statutes in harmony in order to give meaning and effect to all provisions. The general purpose of [the Products Liability Act] is to regulate and limit the scope of products liability actions. In the absence of any specific legislative intent to the contrary, we decline to interpret [the definition of "products liability action" in the Act] to broaden the scope of negligence and strict liability actions and effectively undermine the warranty provisions of the U.C.C.

Id. (internal citations omitted). This passage indicates a demarcation between tort and contract law and makes clear that the Products Liability Act does not apply to actions predicated on U.C.C. and contract law, at least to the extent they seek recovery for solely economic losses. Id.

More recently, in Clarys v. Ford Motor Company, 592 N.W.2d 573 (N.D. 1999), the court reiterated this basic position while concluding that the economic loss doctrine applies to consumers. The court again focused on the difference between contract and tort law and the effects of the Products Liability Act, noting that had the legislature intended to make the Act apply to cases in which the only damage is to the product - generally U.C.C. and contract cases - it could have done so. Id. at 578. This further reinforces the conclusion that, as interpreted by the North Dakota Supreme Court, the Products Liability Act does not apply to U.C.C. and contract claims for solely economic damages.

Based on these cases, the Court concludes that Counts 5, 6, and 7 of plaintiff's complaint, which allege U.C.C. and contract claims, are not subject to the strictures of the Act. They therefore fall outside the purview of the statute DMS cites for their dismissal. The motion to dismiss them is thus DENIED.

The conclusion is different as to Count 4, however. This count alleges that "DMS, by virtue of its relationship with Paracelsus, had a duty to identify and notify Paracelsus that the device could overheat and shut down without sufficient notice." Initially, the Court notes that, to the extent this relationship depends on contract, it is covered by Count 5, which alleges a breach of contract claim in almost the same language as Count 4 alleges negligence. To the extent that it depends on general tort duties, however, it falls within the Act, and the burden is therefore on Paracelsus to show that one of the requirements of section (2) is met; otherwise, based on the statute, the Court "shall order the dismissal" of this claim.

In its response, Paracelsus argues that DMS must have had actual knowledge that the device lacked an audible warning signal to alert users that the machine was overheating. To support this contention, it relies on an affidavit by the manager of the area where the device was used stating that DMS provided training on the use of the device. In short, plaintiff argues that since DMS provided training, it had to know the device lacked an audible warning signal, and since this is the defect for which it sues, DMS must fit within § 28-01.3-04(2)(b), which prevents dismissal if a plaintiff shows the seller had actual knowledge of a defect.

In reply, DMS points to the statutory definition of a defective product, which requires that at the time of sale "there was a defect or defective condition in the product which made the product unreasonably dangerous to the user of consumer." N.D. Cent. Code § 28-01.3-06. Further, it points out that "unreasonably dangerous" is defined by the Act to mean that

the product is dangerous to an extent beyond which would be contemplated by the ordinary and prudent buyer, consumer, or user of that product in that community considering the product's characteristics, propensities, risks, dangers, and uses, together with any actual knowledge, training, or experience possessed by that particular buyer, user, or consumer.

N.D. Cent. Code § 28-01.3-01(4). Therefore, DMS argues, it is not enough merely to show DMS knew the device had a characteristic Paracelsus now describes as a defect; rather, Paracelsus must show DMS knew the product was dangerous to an extent beyond that contemplated by the ordinary and prudent buyer.

The Court generally agrees with DMS' reasoning. The Products Liability Act, as the North Dakota Supreme Court has pointed out, puts legislative limitations on tort recovery. See Clarys, 592 N.W.2d at 577. It does so in part by providing definitions of terms such as "defective product" and "unreasonably dangerous," which a court applying the section is obliged to utilize when evaluating a plaintiff's claims.

Further, the Act limits recovery by providing broad protection to "nonmanufacturing sellers": Companies which, like DMS, sell but do not design or manufacture products. While it allows plaintiffs to hold such sellers liable in tort, they must show that the seller shares some degree of responsibility for the defect. N.D. Cent. Code § 28-01.3-04 (2) (a)-(c). It would be out of touch with the purpose of the legislation to hold that a seller could be held liable under § 28-01.3-04(2) because it was aware that a condition, later discovered to be unreasonably dangerous, existed. Rather, the Act puts a burden on a plaintiff claiming a seller had actual knowledge of a defect, as Paracelsus does here, to come forward with at least some showing that the seller knew the product fit within the definition of "defective," which requires a showing that it was unreasonably dangerous.

This Paracelsus has not even tried to do. Its sole argument in reply to DMS's motion for dismissal under the Act is that DMS surely knew the device had no warning light. ⁽²⁾ Even assuming this is true, it does not mean DMS knew the product was unreasonably dangerous, as that term is defined by the Act. Therefore, in light of plaintiff's failure to rebut the statutory presumption for dismissal of its negligence claim, the motion to dismiss is GRANTED as to Count 4.

IV. Conclusion

For the reasons set forth above, defendant DMS' motion to dismiss is GRANTED as to Count 4 of plaintiff's complaint. However, it is DENIED as to all other counts.

IT IS SO ORDERED.

Dated this _____ day of May, 2000.

1. Defendant Philips Electronics North America (Philips) is not involved in the motion and so has filed no briefs on the subject.

2. The Court does not address Paracelsus' other arguments for liability on the part of DMS because they do not pertain to the statute at issue, which it must satisfy to keep DMS in the case on products liability theories.