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Kalitta Air, LLC v. Central Texas Airborne Systems

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA


July 22, 2005

KALITTA AIR, LLC, AS ASSIGNEE OF AMERICAN INTERNATIONAL AIRWAYS, INC., PLAINTIFF,
v.
CENTRAL TEXAS AIRBORNE SYSTEMS, INC., DEFENDANT.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR JUDGMENT AS A MATTER OF LAW AND CERTIFYING DECISION FOR INTERLOCUTORY APPEAL

The opinion of the court was delivered by: Claudia Wilken United States District Judge

Defendant Central Texas Airborne Systems, Inc., (CTAS) renews, pursuant to Federal Rule of Civil Procedure 50(b), its previous motion for judgment as a matter of law, on the grounds that Plaintiff Kalitta Air, LLC's claims for negligence and negligent misrepresentation are barred under the economic loss doctrine. Kalitta opposes the motion, and purportedly cross-moves for a ruling that, as a matter of law, the economic loss doctrine does not apply to bar its claims.*fn1

The matter was heard on June 24, 2005. Having considered all of the papers filed by the parties and oral argument on the motion, the Court grants CTAS' motion for judgment as a matter of law with respect to Kalitta's negligence claim but denies the motion with respect to the claim of negligent misrepresentation. The Court certifies its decision for interlocutory appeal pursuant to 28 U.S.C. § 1292(b).

BACKGROUND

This long-standing, multi-party dispute arises from the conversion of several Boeing 747s from passenger to cargo craft according to a design later determined by the FAA to be defective. The only remaining parties are Kalitta, the successor-in-interest of the owner of two such Boeing 747s, and CTAS, the FAA-licensed Repair Station that converted Kalitta's two planes. For a more extensive summary of the factual background of this case, see the Court's August 11, 2000 Order granting in part and denying in part CTAS' and former parties GATX and Pemco's motions for summary judgment, in which the Court granted summary judgment in favor of CTAS on Kalitta's negligence claim.

This matter has been tried twice. During the first trial in 2001, the jury found against Kalitta on its negligent misrepresentation claim against CTAS. Kalitta appealed this Court's adverse summary judgment ruling on its negligence claim and this Court's decision to exclude a certain FAA report from the jury during the 2001 trial on its negligent misrepresentation claim. The Ninth Circuit agreed with Kalitta on these points and so reversed and remanded. GATX/Airlog Co. v. Evergreen Int'l Airlines, Inc., No. 01-17165, 2002 WL 31804435 (9th Cir. Dec. 10, 2002).

CTAS subsequently moved for summary judgment on the grounds inter alia that any recovery on Kalitta's claims was barred by the economic loss rule.*fn2 The Court denied the motion, assuming without deciding that the economic loss rule applied to the negligence claim, but finding that Kalitta had introduced sufficient evidence to create a disputed issue of material fact as to whether its airplanes suffered physical damage as a result of CTAS' allegedly negligent performance of its contractual obligations. See December 11, 2003 Order Denying Defendant's Motion for Summary Judgment and Granting Plaintiff's Motion to Enforce Remand at 8. The Court also ruled that the economic loss doctrine did not apply to Kalitta's negligent misrepresentation claim. Id. at 9.

In response to a request by Kalitta for clarification, the Court concluded that the economic loss rule did apply to Kalitta's negligence claim, but that Kalitta could attempt to prove pursuant to Aas that it fell within an exception to the rule if it could show either damage to other property or involuntary out-of-pocket losses, or that the other factors identified in J'Aire Corp. v. Gregory, 24 Cal. 3d 799 (1979), were more strongly present than in Aas. See August 19, 2004 Order Granting Plaintiff's Request for Clarification and Denying Defendant's Request to File a Similar Request. After the hearing, the Court found that Kalitta had failed to make such a showing, and that the economic loss doctrine therefore applied to bar Kalitta's negligence claim. See September 20, 2004 Consolidated Order Clarifying Court's December 11, 2003 Order. Kalitta then moved for leave to file a motion for reconsideration of the September 20, 2004 Consolidated Order, and supported its motion with new evidence of out-of-pocket losses. CTAS opposed that motion. Both parties also submitted additional briefing on the issue of the economic loss doctrine in connection with CTAS' motion for an order bifurcating the trial and trying the economic loss issues first and with the proposed jury instructions. While resolving the parties' disputes over the jury instructions, the Court concluded that the question of whether the exception to the economic loss doctrine described in Aas applied to Kalitta was a disputed issue of fact for the jury to decide.*fn3

The Court instructed the jury on the economic loss doctrine, and explained that Kalitta could not recover under its negligence cause of action unless it proved that it had suffered (1) physical damage to its property other than the product CTAS provided, or (2) involuntary, out-of-pocket losses. February 15, 2005 Jury Instructions at 11. The jury was also charged with determining "what is the 'product' CTAS provided, and what is Kalitta's 'other property.'" Id. at 11-12.

Despite more than two weeks of deliberation and the parties' stipulation to a less than unanimous verdict, the jury was unable to reach a verdict on either the negligence or the negligent misrepresentation claims, or on the specific issue of whether Kalitta had suffered the type of harm needed to satisfy the economic loss rule. The Court declared a mistrial on March 2, 2005.

LEGAL STANDARD

A motion for judgment as a matter of law under Federal Rule of Civil Procedure 50(b) renews the moving party's prior Rule 50(a) motion for directed verdict at the close of all the evidence. The post-trial motion may be raised only as to the same claims and upon the same grounds as the prior motion. Murphy v. City of Long Beach, 914 F.2d 183, 186 (9th Cir. 1990); Collins v. City of San Diego, 841 F.2d 337, 342 (9th Cir. 1988). If no verdict was returned by the jury, the court may either order a new trial or direct entry of judgment as a matter of law. Fed. R. Civ. P. 50(b)(2).

Judgment as a matter of law after the verdict may be granted only when the evidence and its inferences, construed in the light most favorable to the non-moving party, permit only one reasonable conclusion as to the verdict. Where there is sufficient conflicting evidence, or if reasonable minds could differ over the verdict, judgment after the verdict is improper. See, e.g., Kern v. Levolor Lorentzen, Inc., 899 F.2d 772, 775 (9th Cir. 1990); AirSea Forwarders, Inc. v. Air Asia Co., 880 F.2d 176, 181 (9th Cir. 1989); Peterson v. Kennedy, 771 F.2d 1244, 1252 (9th Cir. 1985); L.A. Mem'l Coliseum Comm'n v. NFL, 726 F.2d 1381, 1387 (9th Cir. 1984). The fact that a mistrial was declared because of jury deadlock does not alter the standard to be applied. Headwaters Forest Defense v. County of Humboldt, 240 F.3d 1185, 1197 n.4 (9th Cir. 2000), cert. den., 537 U.S. 1000 (2002).

DISCUSSION

I. Negligence Claim

A. Applicability of the Economic Loss Rule

Although the economic loss rule generally bars recovery in a negligence action of solely economic damages, such as lost profits or the reduced value of a business, the California Supreme Court has confirmed that the presence of one of the J'Aire special relationship factors, "the degree of certainty that the plaintiff suffered injury," creates an exception to the economic loss rule. Aas, 24 Cal. 4th at 646 (quoting J'Aire at 804). The California Supreme Court explained, "Construction defects that have not ripened into property damage, or at least into involuntary out-of-pocket losses, do not comfortably fit the definition of "appreciable harm" --an essential element of a negligence claim." Id. (quoting Davies v. Krasna, 14 Cal. 3d 502, 513 (1975)).

Kalitta can establish the required appreciable harm by one of two methods. Kalitta can prove that it suffered physical damage to its property other than the "product" provided by CTAS. Jimenez, 29 Cal. 4th at 483; Aas, 24 Cal. 4th at 635-36. Alternatively, as the Court in Aas suggested, Kalitta can prove that it suffered involuntary, out-of-pocket losses.

Kalitta insists that the economic loss rule is inapplicable because the contract at issue was solely for CTAS' services. See North American Chem. Co. v. Super. Ct., 59 Cal. App. 4th 764 (1997) (holding that economic loss rule does not apply to allegedly negligent performance of contract for packing and shipping services). First, however, although the Court has previously found that CTAS' contract was one for services rather than a sale of goods, see, e.g., December 11, 2003 Order at 6, it clearly has characteristics of both a contract for services and a contract for a product, and it resulted in actual modifications to aircraft, unlike the packing and shipping services provided in North American.*fn4 Furthermore, as the Court explained in its August 19, 2004 Order, Kalitta's position is contradicted by language in the more recent decision of the California Supreme Court in Aas, which appears to reject the North American Court of Appeal's distinction between negligence performance of services and negligent manufacture of goods. August 19, 2004 Order at 8-9. For these reasons, the Court reiterates its prior conclusion that the economic loss rule applies to CTAS' contract.

Kalitta also contends that the California Supreme Court's recent decision in Robinson Helicopter Co., Inc., v. Dana Corp., 34 Cal. 4th 979 (2004), clarifies that the economic loss rule does not apply to a negligence claim where the plaintiff was denied the ability to negotiate allocation of economic losses, due to a lack of privity of contract or because the underlying agreements were induced by fraud. This interpretation is contradicted, however, by the rationale in Robinson Helicopter, which limited applicability of the economic loss rule for the purpose of preventing "reward [to] malefactors who affirmatively misrepresent and put people at risk." 34 Cal. 4th at 991, n.7. The court explicitly contrasted the policy concerns raised by affirmative acts of fraud and misrepresentation with "those raised by negligence or strict liability claims." Id. The holding was expressly characterized as "narrow in scope and limited to a defendant's affirmative misrepresentations." Id. at 993. Kalitta has enjoyed full recourse for its fraud claims and its claims against those parties with whom it was in contractual privity, and it may recover its economic losses against CTAS if it prevails on its negligent misrepresentation claim; see Section II below. Kalitta has not justified extending its remedies for economic loss to a pure negligence claim against CTAS. Therefore, Kalitta must pursue its negligence claim against CTAS subject to the limitations of the economic loss rule.

B. Physical Damage to Other Property

1. Product at Issue

CTAS argues that a jury could have reasonably concluded, based on the evidence at trial, only that the product at issue in this case was the modified Boeing 747s themselves. Kalitta disagrees, arguing that the "product" was CTAS' modification services.

The distinction between a "product" and "other property" more commonly arises in the context of strict manufacturer's liability cases. Justice Kennard, the author of the majority opinion in Jimenez, expressed in her separate concurrence her "view that that crucial inquiry for applying the economic loss rule in this context is whether the component part has been so integrated into the overall unit that it has lost its separate identity." 29 Cal. 4th at 485. In KB Home v. Super. Ct., 112 Cal. App. 4th 1076, 1087 (2003), a California Court of Appeal set forth a similar, but more detailed, test for distinguishing between "other property" and the defective product in a case involving "component-to-component damage": "whether the defective part is a sufficiently discrete element of the larger product that it is not reasonable to expect its failure invariably to damage other portions of the finished product." See also BAJI 9.02, "Economic Loss" Rule--Component-to-Component Damage--"Other Property" Defined. The court in KB Home found that the following factors could be considered in making this determination, (1) whether the defective component performs an integral function in the operation of the larger product; (2) whether the component has any independent use to the consumer; (3) how related the property damage is to the inherent nature of the defect in the component; (4) whether the component itself or the larger product was placed into the stream of commerce; (5) whether the component was purchased from another manufacturer; (6) whether the larger product was sold in other markets without the component; (7) whether the component can be readily removed from the larger product; and (8) whether the component has been used in other applications.

McDowell Valley Vineyards, Inc., v. Sabate USA, Inc., 2004 WL 1771574, *4 (N.D. Cal. 2004) (summarizing KB Home, 112 Cal. App. 4th at 1086-87). "Resolution of this issue . . . should be left to the trier of fact." KB Home at 1087.

Kalitta has identified sufficient evidence from which a reasonable jury could determine, as the Court suggested in its August 19, 2004 Order, that the product at issue was not the two airplanes. CTAS clearly did not manufacture the original airplanes, and the modifications were separately bargained for and purchased independently from the remainder of the planes. See Gunkel v. Renovations, Inc., 822 N.E. 2d 150, 156 (Ind. 2005) (citing Jimenez and allowing economic loss recovery based on damage caused to house as a result of defective installation of stone facade); Lease Navajo, Inc., v. Cap Aviation, Inc., 760 F. Supp. 455 (E.D. Pa. 1991) (allowing economic loss recovery as a result of defective rebuilding and installation of aircraft engine where exploding engine caused damage to other distinct parts of airplane). In its airplane modification contract with GATX, CTAS limited its responsibility to inspect to "only those areas of the Aircraft upon which the Basic Modification Work is to be accomplished pursuant to this Agreement." Tr. Ex. 4117. Finally, as Conrad Kalitta, owner of AIA and Kalitta, testified, the modifications installed by CTAS did not alter the front end and other essential portions of the airplane; the "wings, the engines, the cockpit, the avionics" were all undisturbed by the modification. Trial Tr. 260:6-9. From this evidence, a jury could reasonably conclude that the "product" provided by CTAS was not the entire airplanes.

On the other hand, Kalitta's assertion, "if CTAS provided a 'product,' that 'product' was its modification services," Kalitta Opp. at 6, is a non-sequitur. Even the evidence cited by Kalitta above suggests that CTAS' labor and manufactured parts resulted in a product, namely the modified portions of the airplane. While CTAS may not have considered itself responsible for ensuring the integrity of the entire airplane, its contractual obligation to inspect did extend to "areas of the Aircraft upon which the Basic Modification Work is to be accomplished." Mr. Kalitta testified that this modification involved installing the door in the side of the plane and replacing the floor beams. Trial Tr. 260:11-14. Kalitta's expert William Pieper testified that the resulting modifications were "an integral part of the structure of the entire aircraft." Trial Tr. 922:22-24. Mr. Pieper's explanation is consistent with the uncontroverted testimony of CTAS' expert Paul Johnston, that the modifications, once installed, were "principal structural elements of the fuselage." Trial Tr. 1893:24-1894:1.

The evidence identified by CTAS, though insufficient to support its motion for a finding that the entire airplanes were the product, does demonstrate that a reasonable jury must conclude, at minimum, that the modified portions of the airplane include the areas of the Boeing fuselage to which the new floor beams and surround structure were attached. CTAS employee Gary Stripling explained that the interior surround structure and floor beams, once installed, became an "integrated part of that structure of the aircraft," replacing the portion of the fuselage that was removed. Trial Tr. 1215:13-23. Kalitta points to no evidence sufficient to rebut CTAS' argument that, at minimum, the product included the areas of alleged joint damage. While it is true that the modification was separately bargained for and purchased, this fact would not assist the jury in deciding exactly which areas of the airplane were modified and which were unmodified. The fact that the installed modifications could, according to Mr. Johnston, be physically taken apart does not prove that Kalitta could "readily" do so or that only a particular part of the modification is the "product"; Mr. Johnston also testified that the entire 747 could be disassembled. Trial Tr. 2200:23-2202:5.

For these reasons, the Court concludes that a reasonable jury must conclude that the product at issue was, at minimum, the modified areas of the aircraft, including the areas of alleged joint damage.

2. Damage to Other Property

CTAS argues that Kalitta failed to offer sufficient evidence to allow a reasonable jury to conclude that CTAS caused damage to property other than the modified areas of the aircraft.

In order to avoid the economic loss rule based on damage to "other property," Kalitta must prove the "essential element" of "appreciable, nonspeculative, present injury." Aas, 24 Cal. 4th at 646. Where essential facts are undisputed, the issue of whether a harm is "'property damage' or merely 'economic loss' . . . presents a question of law." Fieldstone Co. v. Briggs Plumbing Products, Inc., 54 Cal. App. 4th 357, 364 (1997) (citing Sacramento Regional Transit Dist. v. Grumman Flxible. 158 Cal. App. 3d 289, 294 (1984)).

Kalitta argues that a reasonable jury could have found that Kalitta suffered the requisite damage to other property. Kalitta proffers as evidence that CTAS' modifications caused damage to "other property" Mr. Pieper's testimony regarding alleged manufacturing errors and deviations, including plugged holes, open holes and improper edge and pitch distances. See, e.g., Trial Tr. 832, 834, 843-45. Although such errors involved portions of the original Boeing aircraft frame, Kalitta nowhere shows that they occurred in areas beyond those which CTAS was modifying. That these alleged errors were, in fact, part of the modification is clear from Mr. Pieper's testimony; when asked about damage to "other parts of the aircraft," he opined that "the installation of this modification required certain structure to be modified below the new parts and then the introduction of the new parts with fasteners at less than 2D, 4D . . . ." Trial Tr. 918:7-10. The new door, surround structure and floor beams necessarily had to be attached to the existing plane. Assuming arguendo that CTAS' installation of new parts on the existing Boeing frame was negligent, it was nevertheless part of the areas modified by CTAS. As such, these errors are not the kind of unforeseeable damage to "other property" for which, under Aas, Kalitta may recover resulting economic losses.

Kalitta broadly claims that inspections revealed that "CTAS's workmanship damaged the underlying Boeing structure." Kalitta Opp. at 19-20 (citing Trial Tr. 322, 317-319). However, the trial testimony actually cited would not allow a reasonable jury to come to this conclusion. Mr. Kalitta testified only that British Airways inspected the airplanes and found fifty-four "discrepancies" that had to be fixed, some of which were in the portions of the underlying Boeing structure to which the GATX structure was attached, and that he later inspected one of the planes "thoroughly" from front to back. Trial Tr. 317:16-320:320:3; 322:9-11. This testimony does not establish the existence of damage outside the area of modification. Instead, it involves the problems identified by Mr. Pieper, which are part of the modified area. Costs for repairs to the modified area do not constitute damage to other property. See Aas, 24 Cal. 4th at 647. Furthermore, as CTAS notes, the testimony does not establish that all of the discrepancies found by British Airways were caused by CTAS or were not properly dispositioned.

Kalitta also argues that Tom Swift's testimony regarding fatigue damage is sufficient to allow a reasonable jury to conclude that CTAS caused damage to other parts of its airplanes. Kalitta overstates the scope and import of Mr. Swift's testimony. He testified that he analyzed the conversion design used by CTAS on the airplanes, and concluded that the frame suffered a decrease in "fatigue life," i.e. its continuing ability to bear loads without risk of catastrophic failure, by a factor of about 168:1. Trial Tr. 566:17-568:19. He opined that the "most likely place" for damage was where the floor beams attached to the frame, but that there would "of course" be damage to the fatigue life in "areas of the plane outside of the area where the attachment occurs in addition to the attachment points." Id. 568:20-569:7. However, Mr. Swift never provided a more specific opinion about the extent of the submicroscopic fatigue damage that would have allowed the jury to determine that fatigue damage did in fact extend beyond the modified areas of the aircraft. Later, on cross-examination, he testified that any increased rate of growth in cracking "would be above and below" the "area that was modified." Id. 583:15-17. Again, however, he did not specify exactly which "area" that was.

Furthermore, although Mr. Swift testified that a damage tolerance evaluation is usually "done analytically," he also testified that "you've got to validate your analytical methods by a lot of testing so there's both analysis and testing." Trial Tr. 558:13-16. Yet Mr. Swift conceded that he did no such testing of the airplanes, and that he was not aware of any actual fatigue crack on the airplanes that could be seen, even using microscopic methods. Id. 579:15-580:23. As such, Mr. Swift's opinion evidence, in the absence of any test results confirming that fatigue cracking extends beyond the modified area, is, by his own admission, not sufficient to allow a reasonable jury to find the increased rate of fatigue crack growth to have extended beyond the modified areas and constituted the "actual and appreciable harm" compensable in tort pursuant to Aas. 24 Cal. 4th at 646 (citing Davies v. Krasna, 14 Cal. 3d 502, 513 (1975)).

Finally, Kalitta relies on the FAA's requirement that operators comply with seventeen Service Bulletins as evidence that CTAS' installation of the modification caused damage to "other property." In order to comply with the Service Bulletins, AIA was required to fix what the FAA deemed to be a series of errors, such as adding stabilization straps and installing doublers. The FAA's action effectively grounded the planes. As CTAS notes, however, the Service Bulletins applied to the entire fleet, not just those airplanes that CTAS worked on, and therefore are not, in themselves, evidence of CTAS' negligence and resulting harm to Kalitta's planes. Moreover, in Aas, faced with the plaintiffs' attempt to recover the cost of repair of construction defects that violated applicable building codes, the court explained, "To say that one's house needs repairs costing a certain amount is not necessarily to say that one has suffered the type of harm cognizable in tort, as opposed to contract." 24 Cal. 4th at 646. In Aas, the plaintiffs could recover neither the cost of repairs nor the diminution in value of their residences because they had not established the requisite damage to other property. Similarly, Kalitta has not shown sufficient actual damage caused by CTAS to the unmodified portions of the aircraft. For this reason, the Court finds that Kalitta has not shown that CTAS' alleged negligence caused damage to "other property."

C. Involuntary, Out-of-Pocket Losses

CTAS argues that Kalitta did not present sufficient evidence to allow a reasonable jury to conclude that CTAS' alleged negligence caused involuntary, out-of-pocket losses.*fn5

There is no clear standard for what constitutes "involuntary, out-of-pocket losses." The California Supreme Court has held that the cost of voluntary repairs to bring a building up to code are not sufficiently certain to support recovery of economic loss in a tort action. Aas, 24 Cal. 4th at 646. On the other hand, a court found that plaintiffs who incurred backcharges and fees as a direct result of receiving allegedly defective bolts, and then were forced to pay attorneys' fees to deflect liability for those bolts, had sufficiently alleged involuntary, out-of-pocket losses. Platte Anchor at 1055-56.

Kalitta's reliance on J'Aire for the proposition that "business losses" generally constitute sufficiently certain harm is unpersuasive in light of the California Supreme Court's later holding in Aas. Lost profits fall within the general category of "economic loss," which are disallowed in a tort action under the economic loss rule. See Seely v. White Motor Co., 63 Cal. 2d 9, 18 (1965) (addressing the "distinction the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss"); Robinson Helicopter, 34 Cal. 4th at 988 (defining economic loss as "'damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits-- without any claim of personal injury or damages to other property'") (quoting Jimenez, 29 Cal. 4th at 482). As the Court explained in its August 19, 2004 Order, Kalitta may except itself from the economic loss rule by showing either the existence of a "special relationship" based on the J'Aire factors or that it meets the Aas limitations regarding certainty of loss, i.e., a showing of physical damage or involuntary, out-of-pocket losses. Kalitta's definition of involuntary, out-of-pocket losses to include any business loss would create an exception that would swallow the rule set forth in Aas, which limited tort recovery in negligence cases to physical damage or similarly "appreciable, nonspeculative, present injury." 24 Cal. 4th at 646. According to Kalitta, the rule barring recovery of purely economic loss in tort would not apply if there was economic loss.

To demonstrate involuntary, out-of-pocket losses, Kalitta specifically identifies Mr. Kalitta's testimony that AIA paid British Airways to inspect the airplanes and repair the fifty-four discrepancies it found, as required by FAA Administrative Directive (AD) 95-01-04, and that AIA itself spent time and money inspecting its aircraft after the 1996 FAA AD that grounded the planes. See Trial Tr. 317-319 (explaining that AIA paid British Airways to repair discrepancies it found pursuant to AD 95-01-04) and 322-323 (stating that AIA inspected one of the planes "very thoroughly" before concluding that repair would be uneconomical). However, Kalitta does not point to any evidence that shows which portions of the money paid to British Airways for these inspections and repairs were directly attributable to CTAS' negligence, or even what the total amount was. Indeed, AD 95-01-04 applied to the entire fleet, not just the planes CTAS modified.

With respect to the inspection undertaken by AIA prior to Mr. Kalitta's decision not to repair the airplanes, Kalitta again does not identify evidence sufficient to show that the need for inspections was specifically attributable to CTAS' negligence. Nor does Kalitta present evidence showing that the inspections were "involuntary." In the absence of such proof, Kalitta's inspections are instead "economic loss," as defined in Seely, Jimenez and Robinson Helicopter. Finally, Mr. Kalitta never explained exactly how much he spent on additional staff time or other costs associated with the inspection. This vague and ambiguous record is not sufficient to allow a reasonable jury to conclude that CTAS' negligence caused Kalitta the required appreciable and non-speculative injury.

For these reasons, the Court grants CTAS' motion for judgment as a matter of law that the economic loss rule applies to Kalitta's negligence claim against it. No reasonable jury could have found that Kalitta suffered, as a result of CTAS's negligence, the requisite type of harm, either in the form of physical damage to other property or of involuntary, out-of-pocket losses. Kalitta therefore may not recover in tort based on its negligence claim.

II. Negligent Misrepresentation Claim

CTAS moves for judgment as a matter of law that the economic loss doctrine also applies as a bar to Kalitta's claim of negligent misrepresentation. Kalitta opposes the motion.

The Court addressed this issue in its December 11, 2003 Order denying CTAS' motion for summary judgment, and later denied CTAS' request for reconsideration. It ruled that a negligent misrepresentation claim is a fraud claim, not a negligence claim. See Bily v. Arthur Young & Co., 3 Cal. 4th 370, 407 (1992) (negligent misrepresentation is a species of the tort of deceit). The recent holding Robinson Helicopter, although narrowly addressed to claims for intentional misrepresentation and fraud, provides no justification for the Court to reconsider its prior decision.

For this reason, the Court denies CTAS' motion for judgment as a matter of law on Kalitta's negligent misrepresentation claim.

III. Interlocutory Appeal

Kalitta requests that the Court certify its decision to allow interlocutory appeal. Pursuant to Title 28 U.S.C. § 1292(b), the district court may certify appeal of an interlocutory order if (1) the order involves a controlling question of law, (2) appealing the order may materially advance the ultimate termination of the litigation, and (3) there is substantial ground for difference of opinion as to the question of law. The Court should construe the requirements for certification strictly, and grant a motion for certification only when exceptional circumstances warrant such action. Coopers & Lybrand v. Livesay, 437 U.S. 463, 475 (1978).

This order clearly involves controlling questions of law for which there is no direct California law precedent and about which the existing authority allows substantial ground for difference of opinion. Such questions include the applicability of the economic loss rule to contracts that involve provision of services; whether, and if so how, evidence of involuntary, out-of-pocket losses may constitute an exception to the economic loss rule; and the applicability of the economic loss rule to claims of negligent misrepresentation. In the Court's opinion, these issues of law are dispositive of Kalitta's negligence claim and, if the California Supreme Court were to extend the economic loss rule to negligent misrepresentation, they may be dispositive of Kalitta's remaining claim.

Furthermore, this case has already absorbed substantial resources of both the parties and the Court, including two lengthy trials. It is clear that the Court's rulings on the applicability of the economic loss rule would be challenged by the parties on appeal after a third lengthy trial, regardless of which party prevailed. Resolution of these issues prior to undertaking a third trial would materially advance the ultimate termination of this protracted and expensive litigation. For these reasons, the Court concludes that this is an unusual case in which interlocutory appeal is warranted. The Court of Appeals may wish to certify some questions of law to the Supreme Court of California, including at least the applicability of the economic loss rule to negligent misrepresentation claims.

CONCLUSION

For the foregoing reasons, the Court GRANTS in part CTAS' motion for judgment as a matter of law and DENIES it in part (Docket No. 1961). The Court GRANTS CTAS' request to strike (Docket No. 1971) Kalitta's memorandum insofar as it purports to be a motion for judgment as a matter of law. Pursuant to 28 U.S.C. § 1292(b), the Court CERTIFIES this order for interlocutory appeal.

All proceedings in this action shall be stayed pending a decision by the Court of Appeals as to whether it shall permit such an interlocutory appeal. If the Court of Appeals permits an interlocutory appeal, all proceedings shall be stayed pending resolution of that appeal. The parties are directed to inform the Court promptly of any decision of the Court of Appeals.

IT IS SO ORDERED.


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