Paramount Aviation Corporation v. Gruppo Agusta

PRECEDENTIAL
Filed May 1, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-1336
PARAMOUNT AVIATION CORPORATION
Appellant
v.
GRUPPO AGUSTA; AGUSTA AEROSPACE CORPORATION;
COSTRUZIONE AERONAUTICHE GIOVANNI, AGUSTA,
S.P.A.; AGUSTA, S.P.A.
On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civil Action No. 91-cv-04954)
District Judge: Honorable Dennis M. Cavanaugh
Argued: January 24, 2002
BEFORE: NYGAARD and STAPLETON, Circuit Judges ,
and SLEET,* District Judge
(Opinion Filed: May 1, 2002)
Catherine B. Slavin (Argued)
Wolk & Genter
1710-12 Locust Street
Philadelphia, PA 19103
Attorney for Appellant
_________________________________________________________________
* Honorable Gregory M. Sleet, United States District Judge for the
District of Delaware, sitting by designation.
Rudolph V. Pino, Jr. (Argued)
Pino & Associates
50 Main Street
Westchester Financial Center
White Plains, NY 10606
and
John R. Altieri
25 Salem Street
P.O. Box 279
Hackensack, NJ 07601
Attorneys for Appellees
OPINION OF THE COURT
STAPLETON, Circuit Judge:

-- 1 of 13 --

I. BACKGROUND
On October 10, 1989, an Agusta 109A helicopter ("the
helicopter") crashed in Lacey Township, New Jersey killing
the pilot, co-pilot, and three executives of the Trump
Organization. Costruzioni Aeronautiche Giovanni Agusta
S.p.A. ("CAGA"), a subsidiary of Agusta S.p.A.,
manufactured the helicopter. CAGA and Agusta S.p.A. are
part of Gruppo Agusta, which does business in the United
States through a wholly-owned American subsidiary,
Agusta Aerospace Corporation ("AAC"). All of these entities
are named as defendants in this suit.
CAGA sold the helicopter to AAC in November 1983. AAC
then sold it to Soundview Leasing in 1989. Soundview in
turn sold it to Clifton Park Association, which ultimately
sold it in 1989 to its owner at the time of the accident, FSQ
Air Charter Corporation ("FSQ"). After purchasing the
helicopter, FSQ entered into a "Management Agreement"
with Paramount Aviation Corporation ("Paramount"), the
plaintiff/appellant in this suit. Paramount is in the
business of providing helicopter management and
maintenance services to owners and lessees of helicopters.
Pursuant to the Management Agreement, Paramount
advised FSQ "in all matters relating to the helicopter."
2
Among other things, it provided FSQ with pilots, performed
maintenance, prepared the helicopter for flight, determined
whether flight conditions permitted a safe flight, and
facilitated the scheduling of flights. Under the Management
Agreement, Paramount was an independent contractor
providing management and administrative services to FSQ
without any ownership interest in the helicopter and
without any right to use it for its own account. 1
AAC operated a helicopter maintenance facility and
Paramount would from time to time engage its services to
repair and maintain FSQ’s helicopter. The record contains
no evidence of a written agreement between Paramount and
AAC. Paramount would refer to AAC problems and
complaints about the helicopter, and AAC would investigate
the matter and perform whatever maintenance and repairs
that it deemed necessary. In each instance, AAC would
prepare an invoice covering these services and any
replacement parts and forward it to Paramount for
payment. There is nothing in the record to suggest, and we
do not understand AAC to contend, that the services
performed on FSQ’s helicopter were performed under the
terms of its original sale of the craft to Soundview Leasing.
In this suit, Paramount asserts a strict liability claim
against all of the Agusta defendants alleging that the
accident was caused by a defect in one of the main rotor
blades. It also asserts a negligence claim against AAC,
alleging that it was negligent in performing services on the
helicopter when addressing complaints about certain
vibration problems.

-- 2 of 13 --

Paramount does not claim that any of its property was
damaged or destroyed in the crash. Its claims are solely for
economic losses. Specifically, it alleges that as a result of
the accident all Agusta Model 109A helicopters were
grounded. This caused Paramount to lose the profit it
would have otherwise received under the Management
Agreement as well as the profit it would have received
under other agreements it had for managing other 109A
_________________________________________________________________
1. Pursuant to the Management Agreement, Paramount served as FSQ’s
agent "for the sole purpose of establishing accounts in FSQ’s name with
vendors of helicopter parts and components." App. at 212.
3
helicopters. Paramount further alleges that media coverage
of the accident produced a negative public perception
resulting in a downturn of its business.
The parties to this diversity action agree that it is
governed by New Jersey law. The District Court granted
summary judgment for the defendants on the sole ground
that the economic loss doctrine first articulated in Spring
Motors Distributors, Inc. v. Ford Motor Co., 489 A.2d 660
(N.J. 1985), bars recovery of economic losses in a tort
action. The sole issue before us is whether the teachings of
Spring Motors and its progeny foreclose Paramount from
proceeding here on theories of strict liability and
negligence.
II. SPRING MOTORS
Spring Motors was a suit by a purchaser of trucks against
the dealership from which the trucks were purchased, the
truck manufacturer, and the supplier of transmissions to
the manufacturer to recover for economic loss allegedly
occasioned by defective transmissions in the trucks. The
Supreme Court of New Jersey held "that a commercial
buyer seeking damages for economic loss resulting from the
purchase of defective goods may recover from an immediate
seller and a remote supplier in a distributive chain for
breach of warranty under the [Uniform Commercial Code],
but not in strict liability or negligence." 489 A.2d at 663.
The Court explained that in this context "[e]conomic loss
can take the form of either direct or consequential
damages. A direct economic loss includes the loss of the
benefit of the bargain . . . . Consequential economic loss
includes such indirect losses as lost profits." Id. at 665.
In order to determine the critical issue of whether New
Jersey’s version of the Uniform Commercial Code ("the
U.C.C.") provided the exclusive remedies available to the
plaintiff, the Court turned "to the structure and purpose of
the Code, which constitutes a comprehensive system for
determining the rights and duties of buyers and sellers with
respect to contracts for the sale of goods." Id. Underlying
that scheme, the Court concluded, "is the principle that

-- 3 of 13 --

parties should be free to make contracts of their own
4
choice, including contracts disclaiming liability for breach
of warranty." Id. at 668. Primarily for this reason, the Court
determined that "the U.C.C. is the more appropriate vehicle
for resolving commercial disputes arising out of business
transactions between persons in a distributive chain." Id.
Allowing the plaintiff to recover from the manufacturer
"under tort principles would," the Court pointed out,
"dislocate major provisions of the Code" by, for example,
depriving "the seller of the ability to exclude or limit its
liability" for economic loss. Id. at 671. This, inter alia, could
foreclose the parties from effecting the most efficient risk
allocation.
Spring Motors also teaches that a commercial buyer can
recover economic losses from the manufacturer of a
product who is remote in the chain of distribution under an
implied warranty of merchantability. It thus dispensed with
the requirement of privity between parties in that chain,
i.e., "vertical privity." It pointed to its prior decision in
Santor v. A and M Karagheusian, Inc., 207 A.2d 305 (N.J.
1965), for the rationale which justified ignoring the lack of
privity: A manufacturer, by putting its product in the
market for distribution through market channels,
represents to all who might buy the product that it is at
least merchantable and can reasonably foresee both
reliance by buyers and the economic consequences of that
reliance.
Twelve years later, the New Jersey Supreme Court was
asked to decide whether the teachings of Spring Motors
governed claims of a non-commercial purchaser of a
defective boat against the manufacturer and its dealership
for direct economic loss. See Alloway v. General Marine
Indus., 695 A.2d 264 (N.J. 1997). The Court held, as
follows:
By providing for express and implied warranties, the
U.C.C. amply protects all buyers--commercial
purchasers and consumers alike--from economic loss
arising out of the purchase of a defective product. In
addition, many buyers insure against the risk of the
purchase of defective goods . . . . Under the U.C.C. as
construed by this Court, moreover, the absence of
privity no longer bars a buyer from reaching through
5
the chain of distribution to the manufacturer. . . .
Accordingly, we hold that plaintiffs’ tort claims are
barred.
Id. at 275. The Alloway court declined to reach the issue as
to whether a tort action is nevertheless available where the
"defective product poses a serious risk to either property or

-- 4 of 13 --

persons, but has caused only economic loss." Id. at 273.
For present purposes, it is important to note that Spring
Motors and Alloway deal exclusively with product liability
law in the context of relationships governed by the U.C.C.
and with parties in the direct line of the product’s chain of
distribution. Spring Motors does, however, mention in
passing that the U.C.C. provides warranty remedies to
other parties that can fairly be said to be third party
beneficiaries of transactions between parties in the
distribution chain. See 489 A.2d at 665 (citing N.J. Stat.
Ann. S 12A:2-318 (West 1962)). Also, both cases cast the
issue for decision in terms of whether allowing the plaintiff
a tort remedy would subvert the statutory scheme
embodied in the U.C.C.
III. SPRING MOTORS AND THE NEGLIGENCE CLAIM
The commercial warranty provisions found in Article Two
of the U.C.C. apply only to "transactions in goods," and the
implied warranty of merchantability, which was the concern
of Spring Motors and Alloway, provides only that such a
warranty "is implied in a contract for their sale." See N.J.
Stat. Ann. SS 12A:2-102 and 12A:2-314. Moreover, Section
2-701 provides that "[r]emedies for breach of any obligation
. . . ancillary to a contract for sale are not impaired by the
provisions of [Article Two]," and New Jersey’s Commentary
explains that "this section . . . is intended to make it clear
that non-sale-type obligations which are associated with a
contract of sale (e.g., a promise to repair goods) are not
governed by article 2." See N.J. Stat. Ann. S 12A:2-701 and
S 12A:2-701 cmt. 1.
When a contract is for goods and services, a court must
determine which aspect of the contract, the goods or the
services, predominates. See Integrity Material Handling
Sys., Inc. v. Deluxe Corp., 722 A.2d 552, 555 (N.J. Super.
6
Ct. 1999). In making this determination, a court must
examine the whole transaction and look to the essence or
main objective of the parties’ agreement. See Tele-Radio
Sys. Ltd. v. DeForest Elec., 92 F.R.D. 371, 374 (D.N.J.
1981). "[C]ourts look to the language and circumstances
surrounding the contract, the relationship between the
goods and services, the compensation structure and the
intrinsic worth of the goods provided." Integrity Material
Handling Sys., 772 A.2d at 555.
The District Court did not, and could not, on the basis of
the current summary judgment record, conclude that the
arrangement between Paramount and AAC was
predominantly a contract for the sale of goods. If anything,
the record suggests that AAC was engaged as a problem
solver and provided predominantly maintenance and repair
services. See, e.g., T-birds, Inc. v. Thoroughbred Helicopter
Serv., Inc., 540 F. Supp. 548 (E.D. Ky. 1982) (agreement to
overhaul helicopter engine predominantly a service

-- 5 of 13 --

contract). It is sufficient for present purposes, however, to
say that there is at least a material dispute of fact as to
whether the relationship between Paramount and AAC was
governed by the U.C.C. This means that we must assume
that it was not.2 Based on that assumption, Paramount’s
negligence claim is governed by our decision in Merritt
Logan, Inc. v. Fleming Cos. (In re Merritt Logan, Inc.), 901
F.2d 349 (3d Cir. 1990).
_________________________________________________________________
2. It is true, as AAC stresses, that contracts for the sale of goods with
incidental service components are governed by the U.C.C. Chatlos Sys.,
Inc. v. National Cash Register Corp., 479 F.Supp. 738, 742 (D.N.J. 1979).
Agusta does not assert, however, that the original purchase agreement
with Soundview Leasing, which is not in the record, contains provisions
for the subsequent servicing of the helicopter. It merely argues that the
services here at issue would not have been performed but for the original
sale of the helicopter. Appellee’s Br. at 13 ("Despite some service aspects
regarding the maintenance of the subject helicopter, this transaction
involved a sale of goods and is covered by the U.C.C.; without the sale
of the helicopter arranged by Paramount, there would have been no
service provided by AAC."). On this record, we view the agreement of sale
between AAC and Soundview Leasing as wholly irrelevant to the issue of
whether the relationship between Paramount and AAC for servicing is
governed by the U.C.C.
7
In Merritt Logan we applied New Jersey law, including the
teachings of Spring Motors, to determine the rights of the
purchaser of a refrigeration system for its grocery store
(Merritt Logan) against the manufacturer of the systems
(Hussman), the dealer from whom the system was acquired
(Fleming), and a firm which contracted to install the system
(E&R). Merritt Logan sought recovery of economic losses
only. One of Merritt Logan’s claims against E&R was for
negligent installation. We held as follows:
The U.C.C. does not apply to E&R, which provided
services and was not a seller of goods. Therefore, the
U.C.C. does not preclude Merritt Logan’s negligence
claim against E&R.
Id. at 353 n.1.
We also held that "E&R’s contract with Fleming to install
the system would, under New Jersey law, contain[a
common law] implied warranty of good workmanship and
. . . Merritt Logan was a third party beneficiary of that
contract." Id. at 369. We thus sustained a negligence
recovery against E&R on a negligence theory despite the
existence of a common law contractual remedy against it.
As noted, we are required to assume that ACC, like E&R,
entered a contract to provide services. Its contractual
relationship, like that of E&R, was not governed by the
U.C.C. Even though ACC may have had contractual
obligations with respect to the quality of those services, it,
like E&R, may nevertheless be the subject of a negligence

-- 6 of 13 --

claim. As with E&R in Merritt Logan, Spring Motors does not
preclude a negligence recovery against ACC in this case.
IV. SPRING MOTORS AND THE STRICT LIABILITY CLAIM
Spring Motors and Alloway reflect a deference to
legislative will where the legislature has provided a
comprehensive scheme controlling the relationship between
the parties and, more specifically, a recognition of the
importance of the allocation of risk of economic loss against
the background of the rights and remedies provided by the
U.C.C. As we have indicated, they make clear that as far as
parties (whether commercial or non-commercial) within the
8
distribution chain of goods are concerned, the U.C.C. alone
controls the liability of a seller of goods for economic loss
arising as a result of a defect in those goods; there is,
accordingly, no liability in a tort action whether it be one
asserting strict liability or negligence.
The situation before us differs from Spring Motors and
Alloway in that Paramount is neither a purchaser in the
distribution chain nor within the limited class of parties
outside that chain who can fairly be said to be third party
beneficiaries of transactions between parties in the chain of
distribution. Accordingly, Paramount is not in a position to
engage, directly or indirectly, in the risk allocation
contemplated by the U.C.C. For this reason, we conclude
that the Supreme Court of New Jersey would find Spring
Motors and Alloway inapplicable to Paramount’s strict
liability claim against the Agusta defendants.
Under New Jersey’s U.C.C., a seller of goods, absent
disclaimer, impliedly warrants that its goods are
merchantable to all foreseeable, subsequent buyers. See
Henry Heide, Inc. v. WRH Prods. Co., 766 F.2d 105, 110 (3d
Cir. 1985) (applying New Jersey law).3 This implied
_________________________________________________________________
3. N.J. Stat. Ann. S 12A:2-314 provides in relevant part:
(1) Unless excluded or modified (12A:2-316), a warranty that the
goods shall be merchantable is implied in a contract for their sale
if the seller is a merchant with respect to goods of that kind. . . .
(2) Goods to be merchantable must be at least such as
(a) pass without objection in the trade under the contract
description; and
(b) in the case of fungible goods, are of fair average quality within
the description; and
(c) are fit for the ordinary purposes for which such goods are
used; and
(d) run, within the variations permitted by the agreement, of even

-- 7 of 13 --

kind, quality and quantity within each unit and among all units
involved; and
(e) are adequately contained, packaged, and labeled as the
agreement may require; and
(f) conform to the promises or affirmations of fact made on the
container or label if any.
9
warranty runs to, and is enforceable by, not only
subsequent buyers, but also to those who subsequently
acquire an interest less than fee title in the goods, as for
example a lessee of the goods. See Cintrone v. Hertz Truck
Leasing & Rental Serv., 212 A.2d 769 (N.J. 1965); Damin
Aviation Corp. v. Sikorsky Aircraft, 705 F. Supp. 170
(S.D.N.Y. 1989).4 Thus, what is called "vertical privity" is
not a requirement of a warranty claim under New Jersey
U.C.C. law.
Section 12A:2-318 of New Jersey’s U.C.C. provides for a
limited extension of express and implied warranties to some
persons who are not in the distribution chain. That section
is entitled "Third Party Beneficiaries of Warranties Express
and Implied" and provides in relevant part:
A seller’s warranty whether express or implied
extends to any natural person who is in the family or
household of his buyer or who is a guest in his home
if it is reasonable to expect that such person may use,
consume or be affected by the goods and who is
injured in person by breach of the warranty.
N.J. Stat. Ann. S 12A:2-318. Thus, a natural person who is
a member of the household or guest of a buyer and who
receives personal injuries from the defective product, may
recover for those injuries from a seller under the U.C.C. A
seller cannot contract away the operation of this section,
though it can limit its liability to third party beneficiaries by
disclaimers in its agreements with its immediate purchaser.
A member of the household or guest of a buyer in the chain
of distribution is subject to the same defenses that would
be available to the buyer.
Comment 3 of the U.C.C. speaks of Section 2-318 in the
following terms:
This section expressly includes as beneficiaries
within its provisions the family, household, and guests
of the purchaser. Beyond this, the section is neutral
and is not intended to enlarge or restrict the developing
_________________________________________________________________
4. The Damin case, relied upon by the District Court, is inapposite here
because the plaintiff lessee of the helicopter was in the direct chain of
distribution.
10

-- 8 of 13 --

case law on whether the seller’s warranties, given to
his buyer who resells, extend to other persons in the
distributive chain.
Id. at cmt. 3. It is arguable that Section 2-318 was intended
to provide the only situations in which parties not in the
line of distribution are entitled to the benefits provided by
New Jersey’s version of the U.C.C. One can draw a negative
inference from the reference to vertical privity in U.C.C.
Comment 3 that only decisions on dispensing with the
vertical privity requirement have been left to the courts. See
Article Two Warranties In Commercial Transactions: An
Update, 72 Cornell L. Rev. 1159, 1314 (1987)
(characterizing this as the "better view"). Indeed, the only
New Jersey court to directly rule upon the issue held that
Section 2-318 is exclusive with respect to parties who are
not in the distributive chain. Monsanto Co. v. Alden Leeds,
Inc., 326 A.2d 90, 95 (N.J. Super. Ct. Law Div. 1974).
We do not predict, however, that the Supreme Court of
New Jersey will find Section 2-318 to be the exclusive
situation in which someone not in the distribution chain
will be able to recover from a seller under the U.C.C.
Indeed, the Supreme Court of New Jersey has permitted an
employee of a firm which leases trucks to recover from the
lessor of the trucks. See Cintrone, 212 A.2d at 781. We do,
however, predict that one who has neither purchased nor
leased a "good," but rather has been engaged to provide
services to the owner of that "good" and who has suffered
solely economic injury as a result of the malfunction of the
good will not be entitled to recover from the manufacturer
or other sellers in the distribution chain under New
Jersey’s U.C.C.
As we have noted, the U.C.C. provides a comprehensive
scheme applicable to sellers and buyers of goods and the
transactions between them. It provides presumed rights
and remedies and then authorizes private reallocation of
risks. The paradigm relationship within its scheme is that
of a seller and its buyer who can negotiate with each other.
As Spring Motors put it, "the Code generally applies to
parties in privity." 489 A.2d at 674. While the New Jersey
courts, as we have indicated, have dispensed with the
requirement of privity in some situations, neither of the
11
rationales used to extend the scope of the statute applies to
the situation before us.
New Jersey courts dispense with vertical privity where
the injured party is in the direct chain of distribution
because a remote seller, by placing a product in that chain,
impliedly represents to all who may buy it that it was
merchantable when it left its possession. The theory is that
subsequent buyers reasonably expect this to be the case
and the remote seller can normally foresee the

-- 9 of 13 --

consequences of this reliance by purchase. We predict that
this theory would not be applied in New Jersey to excuse
an absence of privity in an economic loss suit against a
manufacturer or other seller in the distribution chain
brought by a service provider who has not relied by
purchase and whose utilization of, and reliance upon, the
product are not necessarily that to be expected of a
purchaser.
Nor can the rationale behind Section 2-318 be stretched
to cover a product liability claim by a service provider
against sellers in the distribution chain. While some parties
who are not buyers or sellers can fairly be said to be the
intended third party beneficiaries of transactions between
buyers and sellers, no one has suggested a reason why
such buyers and sellers would intend to confer a benefit on
a service provider in their contracts of sale and purchase.
In short, the third party beneficiary model simply does not
fit.
Moreover, even if the New Jersey courts would be willing
to extend the third party rationale to a service provider, we
predict that they would find implicit in Section 2-318 a
clearly expressed legislative policy choice limiting recovery
by such third parties to damages for personal injuries.
Finally, Spring Motors and Alloway found that tort
remedies would subvert the U.C.C.’s comprehensive scheme
because it would deprive the parties of the ability to
privately allocate the risk of economic loss. One in
Paramount’s position, of course, has no opportunity to
negotiate with someone in CAGA’s position or, indeed, with
anyone else who seeks to convey an interest in goods and
is subject to the presumptive rights and remedies of the
12
U.C.C. While Paramount did, of course, negotiate with FSQ
over the terms upon which its services were to be provided,
that was not a negotiation covered by the U.C.C. and we
believe the New Jersey courts would find it unrealistic to
expect that service providers are able to protect themselves
from product defects through negotiation with the ultimate
purchaser.
We thus conclude that New Jersey’s version of the U.C.C.
does not provide a comprehensive scheme intended to
govern the product liability rights of Paramount against the
Agusta defendants and that permitting it to proceed with its
strict liability suit will not subvert the legislative scheme
embodied in the U.C.C. Spring Motors and Alloway are,
accordingly, inapposite.
V. RECOVERY OF ECONOMIC LOSS IN TORT
To say that the teachings of Spring Motors and its
progeny do not bar the negligence and strict liability claims
here alleged by Paramount is not to say that the economic
losses it allegedly suffered here are recoverable under the

-- 10 of 13 --

applicable New Jersey tort law. That issue has neither been
decided by the District Court nor briefed by the parties
before us. Accordingly, we do not resolve it. We comment
only to make clear what remains to be decided on remand.
It is well established in New Jersey as elsewhere that "a
defendant who negligently injures a plaintiff or his property
may be liable for all proximately caused harm, including
economic losses." People Express Airlines, Inc. v.
Consolidated Rail Corp., 495 A.2d 107, 109 (N.J. 1985). In
many, if not most jurisdictions, however, there is"a
virtually per se rule barring recovery for economic loss
unless the negligent conduct also caused physical harm."
Id. This is not, however, the New Jersey rule.
In People Express, a fire occurred in Consolidated Rail’s
freight yard when ethylene oxide escaped from a tank car
punctured during a "coupling" operation and ignited. As a
result, the area within a mile radius of the yard was
evacuated. This included the premises on which People
Express’s air freight operation was being conducted. It thus
suffered substantial business interruption losses, for which
13
it brought suit on a negligence theory against Consolidated
Rail and others. People Express suffered no damages to its
property. The New Jersey Supreme Court held as follows:
We hold therefore that a defendant owes a duty of
care to take reasonable measures to avoid the risk of
causing economic damages, aside from physical injury,
to particular plaintiffs or plaintiffs comprising an
identifiable class with respect to whom defendant
knows or has reason to know are likely to suffer such
damages from its conduct. A defendant failing to
adhere to this duty of care may be found liable for
such economic damages proximately caused by its
breach of duty.
Id. at 116.
The People Express court went on to explain that both
the issue of duty and the issue of proximate cause are
affected by the degree to which injury to the particular
plaintiff as well as the specific nature of the injury were
reasonably foreseeable. It stressed, for example, that the
"identifiable class of plaintiffs" referred to in its holding was
"not simply a foreseeable class of plaintiffs," explaining:
For example, members of the general public, or invitees
such as sales and service persons at a particular
plaintiff ’s business premises, or persons travelling on
a highway near the scene of a negligently-caused
accident, such as the one at bar, who are delayed in
the conduct of their affairs and suffer varied economic
losses, are certainly a foreseeable class of plaintiffs. Yet
their presence within the area would be fortuitous, and
the particular type of economic injury that could be

-- 11 of 13 --

suffered by such persons would be hopelessly
unpredictable and not realistically foreseeable. Thus,
the class itself would not be sufficiently ascertainable.
An identifiable class of plaintiffs must be particularly
foreseeable in terms of the type of persons or entities
comprising the class, the certainty or predictability of
their presence, the approximate numbers of those in
the class, as well as the type of economic expectations
disrupted.
Id. at 116.
14
The Court ultimately concluded that People Express had
"set forth a cause of action . . . and [was] entitled to have
the matter proceed to a plenary trial." Id. at 118. It
explained this conclusion in the following terms:
Among the facts that persuade us that a cause of
action has been established is the close proximity of
the North Terminal and People Express Airlines to the
Conrail freight yard; the obvious nature of the
plaintiff ’s operations and particular foreseeability of
economic losses resulting from an accident and
evacuation; the defendants’ actual or constructive
knowledge of the volatile properties of ethylene oxide;
and the existence of an emergency response plan
prepared by some of the defendants (alluded to in the
course of oral argument), which apparently called for
the nearby area to be evacuated to avoid the risk of
harm in case of an explosion. We do not mean to
suggest by our recitation of these facts that actual
knowledge of the eventual economic losses is necessary
to the cause of action; rather, particular foreseeability
will suffice.
Id.
Following remand and the development of an appropriate
record, the District Court should apply the teaching of
People Express to the duty and proximate cause issues
presented here.
Also left for resolution by the District Court is the issue
of whether economic loss unaccompanied by personal
injury or property damage is recoverable in New Jersey
under a strict liability theory. Section 402A of the
Restatement (Second) of Torts, which has been referred to
on numerous occasions by the New Jersey courts with
apparent approval, summarizes the law of strict product
liability. It subjects a seller to liability only for "physical
harm . . . to the ultimate user or consumer, or to his
property." On the other hand, the Supreme Court of New
Jersey in Santor v. A and M Karagheusian, Inc. indicated
that the manufacturer of a carpet could be held liable to a
consumer for direct economic loss on a strict liability tort
theory without regard to whether physical injury or damage

-- 12 of 13 --

15
to other property is involved. 207 A.2d at 312. While the
specific holding of Santor may have little if any continuing
viability after Alloway, the New Jersey Supreme Court may
continue to find the rationale supporting this portion of the
Santor decision persuasive.
The District Court should address on remand whether
economic loss alone is ever recoverable under the strict
liability law of New Jersey and, if so, whether the causal
nexus between the defect and alleged losses here is too
attenuated to permit recovery in strict liability here.
VI.
The judgment of the District Court will be reversed and
this matter will be remanded for further proceedings
consistent with this opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
16

-- 13 of 13 --