                                                                                                                           Opinions of the United
2002 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


4-15-2002

Werwinski v. Ford Mtr Co
Precedential or Non-Precedential:

Docket No. 00-4323




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PRECEDENTIAL

       Filed April 15, 2002

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 00-4323

ROBERT N. WERWINSKI, JR.; ELIZABETH C.
WERWINSKI; JEAN C. COOK; DONNA COFFEY; JOSEPH
COFFEY; JOAN MCILHENNY; DORIS E. ZAHARCHUK;
JAMES DUNLAP, on behalf of themselves and all others
similarly situated

v.

FORD MOTOR COMPANY,

Jean C. Cook, Donna Coffey, Joseph Coffey, Joan
McIlhenny, Doris E. Zaharchuk and James Dunlap, on
behalf of themselves and all others similarly situated,

Appellants

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(No. 00-cv-00943)
District Judge: Honorable Ronald L. Buckwalter

Argued January 15, 2002

BEFORE: SCIRICA, GREENBERG, and
BRIGHT,* Circuit Judges

(Filed: April 15, 2002)
________________________________________________________________
* The Honorable Myron H. Bright, Senior Judge of the United States
Court of Appeals for the Eighth Circuit, sitting by designation.


       Joseph C. Kohn
       Martin J. D’Urso (argued)
       David J. Cohen
       Diana Liberto
       Hilary Cohen
       Kohn, Swift & Graf, P.C.
       One South Broad Street
       Suite 2100
       Philadelphia, PA 19107

        Attorneys for Appellants

       Lynn E. Parseghian
       Brian C. Anderson
       Martha Dye
       Srikanth Srinivasan (argued)
       O’Melveny & Myers, LLP
       555 13th Street, N.W.
       Suite 500 West
       Washington, DC 20004

       Robert Toland, II
       Campbell, Campbell, Edwards &
        Conroy
       Three Glenhardie Corporate Center
       1265 Drummers Lane
       Suite 200
       Wayne, PA 19087

        Attorneys for Appellee

                                 2


       Hugh F. Young, Jr.
       Product Liability Advisory
        Council, Inc.
       1850 Centennial Park Drive,
        Suite 510
       Reston, VA 22091

       Christopher Scott D’Angelo
       Janelle E. Fulton
       Montgomery, McCracken, Walker
        & Rhoads
       123 South Broad Street
       Philadelphia, PA 19109

        Attorneys for Amicus Curiae
       Product Liability Council, Inc.

OPINION OF THE COURT

GREENBERG, Circuit Judge:

This appeal arises out of a putative class action against
Ford Motor Company relating to two allegedly defective
components in the transmissions installed in Ford vehicles
during the 1990-1995 model years. Asserting that Ford
knew about the defective parts since at least 1991,
appellants sued for breach of express warranty, breach of
implied warranty, fraudulent concealment, and violations of
Pennsylvania’s Unfair Trade Practices and Consumer
Protection Law ("UTPCPL"), Pa. Stat. Ann. tit. 73, SS 201-1
et seq. (West 1993). The district court, after denying
appellants’ motion to remand the case to the state court in
which they had originated it, granted Ford’s motion for
judgment on the pleadings as to all of appellants’ claims.
For the reasons set forth below, we will affirm the district
court’s orders.

I. BACKGROUND

A. Factual History

Eight plaintiffs who bought or leased Ford automobiles
manufactured between 1991 and 1995, six of whom appeal,

                                 3
filed the complaint in this case alleging that the
transmissions in their vehicles contained two defective
parts: (1) aluminum (rather than steel) forward clutch
pistons ("FCPs") that crack prematurely, and (2)
inadequately lubricated planetary gears ("RPGs").
Appellants assert that both defects can cause transmission
failures, including "sudden acceleration, delayed forward or
reverse engagement, sudden shifts into reverse, and a total
loss of acceleration or forward movement." Br. of Appellants
at 5. According to the complaint, each of the appellants
experienced transmission failure and incurred substantial
repair costs before his or her automobile had reached
80,000 miles.1

Appellants assert that Ford’s Technical Service Bulletins
demonstrate that the company has known about the FCP
defects since at least 1991. They maintain that Ford
redesigned the FCPs twice before finally deciding in 1994 to
manufacture them with steel instead of aluminum.
Appellants similarly allege that Ford has been aware of the
RPGs’ lubrication defect since at least 1990. Even after
redesigning the RPGs in 1990 and 1992, however, Ford has
been unable to correct the lubrication problem. Despite its
awareness of these malfunctioning components, Ford never
warned the overwhelming majority of car owners about the
transmission defects. According to appellants, Ford not only
concealed this material information from consumers as it
continued to market and sell automobiles with defective
transmissions, but it addressed the problem by cutting its
6-year/60,000 mile power train warranty for its 1991
models to a 3-year/36,000 mile warranty for its 1992
models.
_________________________________________________________________

1. Jean Cook’s 1991 Mercury Sable experienced transmission failure at
44,500 miles; Donna and Joseph Coffey’s 1995 Ford Winstar experienced
transmission problems at 50,000 miles; Joan McIlhenny’s 1990 Ford
Taurus had to have its transmission overhauled at 73,159 miles; Daria
Zaharchuk’s 1993 Ford Taurus experienced transmission failure at
48,779 miles; and James Dunlap’s 1995 Ford Winstar had to have its
transmission overhauled at 65,000 miles. See Pls.’ Compl. PP 33-37
(App. 43a-45a).

                                4


B. Procedural History

On January 20, 2000, appellants filed their putative class
action in the Philadelphia County Court of Common Pleas.
Ford promptly removed the case to the district court on the
basis of diversity of citizenship following which appellants
moved to remand the case, arguing that the amount-in-
controversy jurisdictional threshold exceeding $75,000 had
not been satisfied. On April 11, 2000, the district court
denied appellants’ motion for remand and thus retained
jurisdiction over the case. In its order, the district court
first indicated that Pennsylvania courts "have found that
the amount in controversy in a suit under the UTPCPL is
the purchase price of the car." Werwinski v. Ford Motor Co.,
No. Civ. A. 00-943, 2000 WL 375260, at *3 (E.D. Pa. Apr.
11, 2000). Finding that a jury reasonably could conclude
that appellants were entitled to recover the purchase price
of their automobiles to make them whole, the court started
with a base of $15,000 in damages. See id. After trebling
the compensatory damages to $45,000 pursuant to the
UTPCPL, the court next determined that reasonable
attorney’s fees could range between $5,000 and $10,000,
thus pushing the amount to over $50,000. See id. Finally,
recognizing that the UTPCPL provides courts with
discretionary authority to impose punitive damages, the
district court concluded that "[b]ased on Plaintiffs’
allegations, a reasonable jury could award punitive
damages that would easily place the amount in controversy
above $75,000." Id. at *4.2

On May 24, 2000, Ford filed a motion for judgment on
the pleadings. After the motion was briefed fully, the
district court entered an order granting the motion with
respect to the claims of all parties except the Werwinskis’
claim for breach of express warranty. Of concern on this
appeal, the district court dismissed the fraudulent
concealment and UTPCPL claims under the economic loss
doctrine because "recovery in tort is barred in product
_________________________________________________________________

2. Having concluded that the compensatory and punitive damages could
exceed the amount-in-controversy threshold, the court deemed it
unnecessary to consider the value of the injunctive relief sought by
appellants. See id.

                                5


liability actions between commercial enterprises where the
only damage alleged is to the product itself, even if the
defect posed a potential risk of injury." Werwinski v. Ford
Motor Co., No. Civ. A. 00-943, 2000 WL 1201576, at *4
(E.D. Pa. Aug. 15, 2000). In coming to this conclusion, the
district court determined that the economic loss doctrine is
not limited to transactions between commercial enterprises,
but extends to transactions between manufacturers and
individual consumers as well. See id. at *5. Furthermore,
the district court predicted that the Supreme Court of
Pennsylvania would conclude that the economic loss
doctrine applies to claims for intentional fraud in addition
to claims for negligence, strict liability, and negligent
misrepresentation. See id. Finally, the district court
observed that Pennsylvania’s two-year statute of limitations
for common law fraud actions barred the fraud claims of
several appellants. See id. at *6 n.5.

Eventually, the Werwinskis settled their case with Ford
and dismissed all of their claims with prejudice. 3 On
December 12, 2000, the district court entered final
judgment for Ford. Three days later, appellants filed a
timely notice of appeal challenging both the district court’s
order denying remand and its order disposing of the case
on the merits.

II. JURISDICTION AND STANDARD OF REVIEW

A. Jurisdiction

The district court exercised removal jurisdiction over this
putative class action based upon diversity of the parties.
See 28 U.S.C. SS 1332(a)(1), 1441(b). The district court
entered final judgment in the case on December 12, 2000,
and appellants filed a timely notice of appeal, and thus we
have appellate jurisdiction pursuant to 28 U.S.C.S 1291.

B. Standard of Review

We exercise plenary review over the district court’s order
_________________________________________________________________

3. Consequently, the Werwinskis are not parties to this appeal, even
though their names remain in the caption as a procedural formality. See
Br. of Appellants at 4 n.2.

                                6


denying appellants’ motion for remand, see Lazorko v. Pa.
Hosp., 237 F.3d 242, 247 (3d Cir. 2000), cert. denied, ___
U.S. ___, 121 S. Ct. 2552 (2001), and its order granting
Ford’s motion for judgment on the pleadings, see Churchill
v. Star Enters., 183 F.3d 184, 189 (3d Cir. 1999).

III. DISCUSSION

Appellants raise several issues on appeal. First, they
contend that the district court erred in denying their
motion to remand because the amount-in-controversy
requirement for diversity jurisdiction had not been met for
any of their claims. Second, they argue that the district
court erroneously applied the economic loss doctrine to
their fraudulent concealment and UTPCPL claims. Finally,
appellants submit that the district court erred in ruling
that the Pennsylvania statute of limitations barred certain
of their fraudulent concealment claims. See infra note 9.

A. Amount in Controversy

A district court has subject matter jurisdiction over state
law claims if there is complete diversity of citizenship
between the parties and the amount in controversy exceeds
$75,000 for each plaintiff. See 28 U.S.C.S 1332. Appellants
argue that the district court should not have exercised
removal jurisdiction because the $75,000 threshold has not
been satisfied. In particular, they contend that the court
erred when calculating the amounts in controversy by
taking into account the purchase price of their vehicles,
rather than just the repair costs for their transmissions.

A district court’s determination as to the amount in
controversy must be based on the "plaintiff ’s complaint at
the time the petition for removal was filed." Steel Valley
Auth. v. Union Switch Div., 809 F.2d 1006, 1010 (3d Cir.
1987). The court must measure the amount "not . .. by the
low end of an open-ended claim, but rather by a reasonable
reading of the value of the rights being litigated." Angus v.
Shiley Inc., 989 F.2d 142, 146 (3d Cir. 1993). However,
"claims of several plaintiffs, if they are separate and
distinct, cannot be aggregated for purposes of determining
the amount in controversy." Meritcare Inc. v. St. Paul
Mercury Ins. Co., 166 F.3d 214, 218 (3d Cir. 1999) (internal

                                7


quotation marks omitted). See also Zahn v. Int’l Paper Co.,
414 U.S. 291, 301, 94 S. Ct. 505, 512 (1973). Only claims,
whether related or unrelated, of a single plaintiff against a
single defendant may be aggregated. See Snyder v. Harris,
394 U.S. 332, 335, 89 S. Ct. 1053, 1056 (1960). 4

Appellants first argue that the amount in controversy for
each plaintiff does not even approach $75,000 because
their complaint requests compensatory damages for only
the costs of repairing or replacing the defective
transmissions, which range from $848 to $2,434. See Br. of
Appellants at 12. Appellants’ erroneous assertion that their
complaint does not claim damages based on the purchase
price of the automobiles is belied, however, by their
complaint’s "Prayer for Relief," which plainly seeks recovery
for, inter alia, "compensatory damages" and "all or part of
the sums [appellants] paid to purchase or lease [their]
automobiles." Pls.’ Compl. at 19-20 (App. 54a-55a). The
"Prayer for Relief " also demands "that defendant disgorge,
for the benefit of the class, its ill-gotten profits received
from the sale or lease of the subject vehicles and/or make
full restitution to the Named Plaintiffs and the other
members of the Class." Id. at 20 (App. 55a). Although
appellants indicated in their motion to remand that they
were seeking only repair costs and that "individual claims
_________________________________________________________________

4. Appellants allege in their complaint that their claims exceed $50,000
in value, see Pls.’ Compl. P 42 (App. 46a), but they insist that they
included this allegation to avoid the case being referred to Pennsylvania’s
mandatory arbitration program. See Br. of Appellants at 12. The district
court considered this allegation to be a concession by appellants that the
amount in controversy was at least $50,000 and that they were seeking
more than merely $2,000-$3,000 in repair costs for each plaintiff. See
Werwinski, 2000 WL 375260, at *3. Appellants explain that they reached
the $50,000 figure by aggregating their damages, which they assert is
allowed to pass the state mandatory arbitration threshold but is not
permitted to pass the federal amount in controversy threshold. See Br.
of Appellants at 12. The district court rejected appellants’ explanation,
concluding for itself that the local rules governing the mandatory
arbitration program do not permit aggregation. See Werwinski, 2000 WL
375260, at *3. We need not resolve this issue, however, for even if the
district court was correct, appellants’ alleged admission that the amount
in controversy exceeded $50,000 would not in itself satisfy the $75,000
threshold.

                                8
for compensatory damages[ ] will rarely exceed $2,000, and
will not exceed $3,000," Pls.’ Mot. for RemandP 3 (App.
112a), the amount in controversy must be calculated based
on a "reasonable reading" of the complaint, and a plaintiff ’s
stipulation subsequent to removal as to the amount in
controversy or the types of relief sought is of"no legal
significance" to the court’s determination. See Angus, 989
F.2d at 145. Consequently, the district court properly found
that the complaint did not restrict appellants’ recovery to
only the cost of repairing the defective transmissions, and
therefore, a jury reasonably could conclude that appellants
should be awarded the purchase price of their cars to make
them whole.

Appellants assert that the district court based its holding
on a "jaundiced reading" of their complaint because the
only injuries pled or specific sums listed in the complaint
relate to the repair and replacement costs of the defective
transmission parts. See Reply Br. of Appellants at 6. They
note that the complaint makes no reference to the value of
their automobiles or how much they paid for them. See id.
at 7. Appellants insist that the district court’s reading of
the complaint essentially requires them to state explicitly
that they were seeking only repair costs and were not
seeking refunds for the purchase price of the automobiles.
See id. at 8. They submit that requiring them to plead with
"such redundancy" violates Fed. R. Civ. P. 8(a). Id.

If the "Prayer for Relief " in their complaint did not
request an order declaring Ford "financially responsible . . .
for all or part of the sums [appellants] paid to purchase or
lease [their] automobiles" or demand that Ford disgorge "its
ill-gotten profits received from the sale or lease of the
subject vehicles," then we might say that appellants’
argument has some merit. Nevertheless, because of these
provisions, the complaint clearly leaves the door open for
them later to demand reimbursement for the purchase
price of the cars. And because the district court must base
its amount-in-controversy determination on what a jury
reasonably could award appellants, it cannot be said that
the court erred in concluding on the basis of the complaint

                                9


that a jury could decide that appellants are entitled to
refunds for the purchase price of their cars.5

Appellants next contend that the district court’s amount-
in-controversy calculation was flawed inasmuch as litigants
are not permitted to recover the purchase price of their
vehicles under the UTPCPL. Appellants argue that the four
cases6 cited by the district court to support its conclusion
that the purchase price of a vehicle is recoverable under the
UTPCPL are inapposite because the courts in those cases
calculated the amount in controversy under Pennsylvania’s
"Lemon Law," Pa. Stat. Ann. tit. 73, SS 1951-63 (West
1993), not the UTPCPL. The Lemon Law provides, in
relevant part, that:

       If the manufacturer fails to repair or correct a
       nonconformity after a reasonable number of attempts,
       the manufacturer shall, at the option of the purchaser,
       replace the motor vehicle with a comparable motor
       vehicle of equal value or accept return of the vehicle
       from the purchaser and refund to the purchaser the
       full purchase price, including all collateral charges, less
       a reasonable allowance for the purchaser’s use of the
       vehicle . . . .
_________________________________________________________________

5. Appellants assert that the district court used the purchase price of the
vehicles instead of the repair costs even after acknowledging that the
parties agreed the complaint sought reimbursement for the cost of
transmission repair. See Br. of Appellants at 13. Appellants misrepresent
the district court’s statement, however, for the court simply observed
that "[t]he parties seem to agree that the Complaint could be read as
asking for the cost of repairing the damage[d] transmissions." Werwinski,
2000 WL 375260, at *2 (emphasis added). The district court went on to
explain that Ford nevertheless argued that additional costs pushed the
amount above $75,000. See id. Despite the impression appellants are
trying to leave with this court through their characterization of the
district court’s ruling, the parties never agreed that the repair costs (not
the purchase price) were the appropriate starting point for assessing the
amount in controversy.

6. These four cases are: Pavese v. General Motors Corp., No. Civ. A. 97-
3688, 1998 WL 57761 (E.D. Pa. Feb. 11, 1998); Palan v. Ford Motor Co.,
Civ. A. No. 95-1445, 1995 WL 476240 (E.D. Pa. Aug. 8, 1995); Voorhees
v. General Motors Corp., Civ. A. No. 90-295, 1990 WL 29650 (E.D. Pa.
Mar. 16, 1990); Adams v. General Motors Corp. , Civ. A. No. 89-7653,
1990 WL 19950 (E.D. Pa. Feb. 26, 1990).

                                10


Id. at 1955 (emphasis added). Appellants submit that the
UTPCPL, unlike the Lemon Law, does not specify that
compensatory damages should be based on the purchase
price of the vehicle and, therefore, the measure of damages
in this case should be based on the cost of repairing or
replacing the defective parts.

Appellants’ argument fails for two reasons. First,
although the UTPCPL does not specifically identify the
vehicle’s purchase price as the appropriate measure for
compensatory damages, it likewise does not indicate that
repair costs should be the sole measure for damages. The
UTPCPL provides instead that a plaintiff can recover"actual
damages," which the court may treble at its discretion, as
well as "such additional relief [the court] deems necessary
or proper." Pa. Stat. Ann. tit. 73, S 201-9.2. Therefore,
notwithstanding appellants’ position to the contrary, the
UTPCPL does not preclude a jury from awarding them
damages based on the purchase price of their vehicles.

Second, appellants’ argument is based on flawed
interpretations of the opinions that the district court cited
in support of its conclusion that a vehicle’s purchase price
is the correct measure of compensatory damages under the
UTPCPL. Despite what appellants argue in their briefs, the
plaintiffs in Palan v. Ford Motor Co., Civ. A. No. 95-1445,
1995 WL 476240 (E.D. Pa. Aug. 8, 1995), Adams v. General
Motors Corp., Civ. A. No. 89-7653, 1990 WL 19950 (E.D. Pa.
Feb. 26, 1990), and Pavese v. General Motors Corp., No.
Civ. A. 97-3688, 1998 WL 57761 (E.D. Pa. Feb. 11, 1998),
specifically sought recovery under the UTPCPL, and the
courts calculated the amount in controversy under the
UTPCPL, notwithstanding the fact that the plaintiffs also
stated claims under the Lemon Law.

For instance, the district court in Palan explicitly stated
that "as to plaintiff ’s Consumer Protection Law claim, the
actual amount in controversy is three times the purchase
price." See Palan, 1995 WL 476240, at *2. Furthermore, the
district court in Adams concluded that, even leaving aside
the Lemon Law claim, the UTPCPL claim itself exceeded the
amount-in-controversy threshold insofar as the statute
permitted the court to treble plaintiff ’s base request of
$22,027.84 in damages, which represented the purchase

                                11


price of the automobile. See Adams, 1990 WL 18850, at *2.
Finally, the district court in Pavese had no choice but to
calculate the amount in controversy under the UTPCPL
after it held that the plaintiff failed to state a claim under
the Lemon Law because she was leasing the vehicle and
lessees are not permitted to sue under the Lemon Law. See
Pavese, 1998 WL 577761, at *2-3. General Motors argued
that the plaintiff ’s actual damages under the UTPCPL could
not exceed the total lease payments she had made at the
time she filed her complaint ($16,637.48), whereas the
plaintiff asserted that she was entitled to recover the full
purchase price of the car ($33,505). The district court
sidestepped the issue, however, by concluding that the
amount-in-controversy threshold could be met by trebling
the amount of plaintiff ’s total lease payments ($16,637.48).7

Palan, Adams, and Pavese are consistent with two other
decisions from the Eastern District of Pennsylvania
recognizing a vehicle’s purchase price as the appropriate
measure of damages for automobile defect claims under the
UTPCPL. In Levin v. American Honda Motor Co., Civ. A. No.
94-5380, 1994 WL 719856, at *3 (E.D. Pa. Dec. 21, 1994),
the plaintiff sued under, inter alia, the Lemon Law and the
UTPCPL, but the district court calculated the amount in
controversy under the UTPCPL after dismissing the Lemon
Law claim for failure to exhaust alternative remedies under
the statute. In retaining jurisdiction over the case, the court
concluded that "[t]he actual damages in this case would be
the total purchase price less a reasonable allowance for the
use of the vehicle." Id.
_________________________________________________________________

7. Appellants are correct that one of the four opinions cited by the
district court does not squarely support its holding. In Voorhees v.
General Motors Corp., Civ. A. No. 90 295, 1990 WL 29650, at *2 (E.D. Pa.
Mar. 16, 1990), the district court first explained that the "actual
damages for violation of the Lemon Law will be the total purchase price
of the truck," and it then trebled the damages under the UTPCPL
because a violation of the Lemon Law is also a violation of the UTPCPL.
Thus, by intertwining the Lemon Law and the UTPCPL in its analysis of
the amount in controversy, the court skirted the question of whether
actual damages under the UTPCPL should be measured by the purchase
price of the car.

                                12


In McLaughlin v. Volkswagen of America, Inc., No. Civ. A.
00-3295, 2000 WL 1793071, at *1 (E.D. Pa. Dec. 6, 2000),
the plaintiff sued Volkswagen for fraud and fraudulent
misrepresentation, negligent misrepresentation, breach of
contract, and violations of the UTPCPL, alleging that her
car contained a defective fuel level sensor. The district court
determined that the baseline for damages under the
UTPCPL was the car’s purchase price ($50,000), not its
reduction in value. See id. at *2. The court explained:

       Where an alleged defect relates to a discreet [sic],
       modular, or incidental part of the vehicle (such as the
       tires, windshield wipers or stereo), it is unreasonable to
       use the purchase price as a baseline for measuring the
       amount in controversy. In such cases, the better
       measure of damages is the replacement cost of the part
       in question. However, where an alleged defect relates to
       an integrated system that is necessary to the safe
       operation of the vehicle (such as the engine or
       transmission), it is reasonable to assume that the
       baseline for damages is the purchase price of the car.

Id. at *3.

Unable to reconcile their position with these authorities,
appellants urge us to follow Waggoner Equipment Co. v.
Ford Motor Co., No. 00-CV-0168-MJR (S.D. Ill. Nov. 6,
2000), and Jorgenson v. Ford Motor Co., No. CV-99-355
CAS (Ex), Minute Order (C.D. Ca. Mar. 30, 1999). Although
these cases are factually similar in that the district courts
remanded similar suits against Ford seeking recovery for
the same faulty transmissions involved here, these two
decisions from outside this circuit are unavailing for two
reasons. First, the courts based their decisions on different
state consumer protection statutes, so they provide little
insight on whether a court should use the vehicle’s
purchase price as the baseline for determining the amount
in controversy in a suit involving a Pennsylvania UTPCPL
claim. Second, the cases are readily distinguishable on
critical facts. For example, the plaintiff ’s complaint in
Waggoner expressly stated that the amount sought by each
plaintiff did not exceed $75,000. Thus, instead of arguing
that the amount in controversy should be based on
compensatory damages, Ford urged the court to consider

                                13
the cost of a provision in the complaint requiring the
company to "create from scratch a massive owner
identification, notification and transmission repair
program," which Ford insisted would exceed $75,000.
Similarly, in Jorgenson, Ford did not assert that
compensatory and punitive damages for each plaintiff
would exceed $75,000, but instead argued that the
plaintiffs’ claims for injunctive relief met the amount-in-
controversy requirement. In both cases, the district courts
concluded that the equitable relief sought did not satisfy
the jurisdictional threshold and, therefore, remanded the
cases.

Appellants do not provide a convincing argument to
support their assertion that damages under the UTPCPL
necessarily should be confined to the cost of repairing or
replacing the defective transmissions and should not take
into account the purchase price of the automobiles.
Moreover, their complaint specifically seeks "all or part of
the sums [appellants] paid to purchase or lease [their]
automobiles." Pls.’ Compl. at 19-20 (App. 54a-55a).
Furthermore, the text of the UTPCPL allowing plaintiffs to
recover "actual damages" for violations of the statute in no
way precludes recovery for the purchase price of the
vehicles. We also point out that appellants misconstrue
three of the four cases cited by the district court, for these
decisions plainly calculated the amount in controversy
under the UTPCPL by using the purchase price of the
vehicle, not the repair costs, as the baseline for damages.
Finally, the only cases appellants present in support of
their position are based on statutes from other states and
easily are distinguished on critical facts. Overall, we are
satisfied that the district court correctly held that the
$75,000 threshold was exceeded for each of the appellants’
claims. Therefore, we will affirm the district court’s order
denying appellants’ motion for remand.

B. Economic Loss Doctrine

Appellants contend that the district court erred in
applying the economic loss doctrine to their fraudulent
concealment and UTPCPL claims because (1) the doctrine
applies only to transactions between commercial entities,
not to transactions involving individual consumers, and (2)

                                14


the doctrine does not bar actions for intentional fraud. The
Supreme Court of Pennsylvania has not addressed either
question, and inasmuch as Pennsylvania substantive law is
controlling here, we must predict how the court would rule
by "giving ‘proper regard’ to the relevant rulings of other
courts of the state." Robertson v. Allied Signal, Inc., 914
F.2d 360, 378 (3d Cir. 1990). "In the absence of guidance
from the state’s highest court, we are to consider decisions
of the state’s intermediate appellate courts for assistance in
predicting how the state’s highest court would rule." Gares
v. Willingboro Twp., 90 F.3d 720, 725 (3d Cir. 1996). See
also U.S. Underwriters Ins. Co. v. Liberty Mut. Ins. Co., 80
F.3d 90, 93 (3d Cir. 1996) ("The rulings of intermediate
appellate courts must be accorded significant weight and
should not be disregarded absent persuasive indication that
the highest court would rule otherwise.").

The economic loss doctrine "prohibits plaintiffs from
recovering in tort economic losses to which their
entitlement flows only from a contract." Duquesne Light Co.
v. Westinghouse Elec. Corp., 66 F.3d 604, 618 (3d Cir.
1995). The Supreme Court adopted the doctrine in an
admiralty products liability case, holding that"a
manufacturer in a commercial context has no duty under
either negligence or strict-liability theory to prevent a
product from injuring itself." East River S.S. Corp. v.
Transamerica Delaval, Inc., 476 U.S. 858, 871, 106 S.Ct.
2295, 2302 (1986). Though it recognized the need for
products liability law to protect consumers from dangerous
products, the Court expressed concern that if products
liability remedies "were to progress too far, contract law
would drown in a sea of tort." Id. at 866, 106 S.Ct. at 2300.

Drawing a distinction between tort and contract law, the
Court observed that the need for a remedy in tort is
reduced when the only injury is to the product itself and
"the product has not met the customer’s expectations, or,
in other words, that the customer has received ‘insufficient
product value.’ " Id. at 872, 106 S.Ct. at 2302. The Court
explained that in such a situation express and implied
warranties under contract law are best suited to
compensate for a loss in product value. Not only would
allowing an action to lie in tort impose substantial costs on

                                15


society, but relying on contract law permits parties to
negotiate the terms of the manufacturer’s liability. See id.
at 872-73, 106 S.Ct. at 2302-03. In exchange for allowing
the manufacturer to restrict its liability, the purchaser can
bargain for a lower price. Id. at 873, 106 S.Ct. at 2303.
Accordingly, the Court saw "no reason to intrude into the
parties’ allocation of the risk." Id.

Although the Supreme Court of Pennsylvania has not
ruled on the viability of the economic loss doctrine, an en
banc panel of the Pennsylvania Superior Court adopted the
doctrine largely as set forth in East River. In REM Coal Co.
v. Clark Equipment Co., 563 A.2d 128, 134 (Pa. Super. Ct.
1989), the court held that "negligence and strict liability
theories do not apply in an action between commercial
enterprises involving a product that malfunctions where the
only resulting damage is to the product itself." Following
the Supreme Court’s reasoning in East River, the court
stated that "contract theories such as breach of warranty
are specifically aimed at and perfectly suited to providing
complete redress in cases involving . . . economic losses."
Id. at 129. The court further explained that"such losses are
based upon and flow from the purchaser’s loss of the
benefit of his bargain and his disappointed expectations as
to the product he purchased. Thus, the harm sought to be
redressed is precisely that which a warranty action does
redress." Id. The court concluded that limiting a plaintiff to
contract remedies was necessary because "[t]o impose tort
liability in addition would certainly erode the important
distinctions between tort and contractual theories,
including their differing objectives." Id. at 411.

1. Commercial Entities

Appellants contend that the district court’s dismissal of
their claims under the economic loss doctrine was improper
because the doctrine applies only to transactions between
commercial enterprises. Ford maintains that the district
court’s holding not only was correct, but was consistent
with Pennsylvania state court decisions recognizing that the
economic loss doctrine extends to transactions involving
individual consumers.

Appellants first argue that the district court’s holding is
inconsistent with the seminal opinions on the economic

                                16


loss doctrine because these decisions specifically speak of
transactions between commercial entities. See East River,
476 U.S. at 871, 106 S.Ct. at 2302 ("manufacturer in a
commercial relationship"); Duquesne Light, 66 F.3d at 620
("sophisticated business entities"); REM Coal, 563 A.2d at
134 ("commercial enterprises"); Indus. Unif. Rental Co., Inc.
v. Int’l Harvester Co., 463 A.2d 1085, 1093 (Pa. Super. Ct.
1983) ("commercial enterprises"). Appellants’ argument is
unavailing, however, for although the courts in these cases
limited their discussions to the circumstances presented
therein -- namely to transactions that happened to arise
between two businesses -- these opinions do not indicate
that the doctrine should not be applied to transactions
involving noncommercial entities. Moreover, appellants do
not offer authority specifically holding that the economic
loss doctrine should not apply to transactions between
manufacturers and noncommercial consumers.

In light of the Supreme Court of Pennsylvania’s silence
on the issue, the district court relied on the Pennsylvania
Superior Court’s decision in Jones v. General Motors Corp.,
631 A.2d 665 (Pa. Super. Ct. 1993), to predict how the
Supreme Court of Pennsylvania would resolve the matter.
As in this case, the plaintiffs in Jones were individual
consumers suing an automobile manufacturer for defective
components in their vehicle, which in Jones caused a fire
that destroyed their truck. See id. at 665. The superior
court applied the economic loss doctrine to the plaintiffs’
strict liability claim, holding that "we find that the rationale
behind REM Coal is equally applicable to disputes involving
claims brought by individuals." Id. at 666. The court
explained that "[r]egardless of whether a consumer is a
commercial entity or an individual, a manufacturer’s
warranty as to the quality of its product is a bargained for
condition of sale, the effect of which must not be
undermined." Id.

Appellants urge us to disregard Jones because "it was a
panel decision that cannot, by law, overrule the
‘commercial entity’ requirement of REM Coal , an en banc
decision." Br. of Appellants at 22 (citing Larthey v. Bland,
532 A.2d 456, 459 (Pa. Super. Ct. 1987)). The superior
court’s decision in Jones, however, did not"overrule" REM

                                17


Coal in any manner: as explained above, the REM Coal
court addressed the legal issue in the context of the facts
of that particular case and never explicitly stated that the
doctrine should not be applied to disputes between
manufacturers and noncommercial parties. Even more
importantly, appellants misinterpret REM Coal as including
a "commercial entity" requirement, for the court specifically
reserved on whether the doctrine applies only to
commercial enterprises. See REM Coal, 563 A.2d at 134 n.4
("Since the case sub judice involves a dispute between
commercial enterprises, as did East River and Aloe Coal, we
need not and do not decide any questions regarding
disputes between non-commercial parties.").

Appellants’ position that we should ignore Jones is at
odds with our responsibility to give "significant weight" to
state appellate court decisions that may provide insight into
how the state supreme court would settle the issue. U.S.
Underwriters, 80 F.3d at 93. Moreover, as Ford points out,
Jones is not the only Pennsylvania decision applying the
economic loss doctrine to commercial and noncommercial
purchasers alike. See, e.g., Fasig v. Security-Conn. Life Ins.
Co., 41 Pa. D. & C. 4th 494, 502-03 (Ct. Com. Pl. of Wayne
County 1999); Buck v. Ford Motor Co., No. AR 97-6895,
Pittsburgh Legal J., March 1999, at 83 (Ct. Com. Pl. of
Allegheny County, Pa. Oct. 14, 1998). Therefore, even if
courts rarely have cited Jones since it was issued eight
years ago, the decision is still more predictive of how the
Supreme Court of Pennsylvania would rule than the lack of
cases presented by appellants in support of their position.
Accordingly, as it was required to do, the district court
correctly gave "proper regard" to Jones in predicting that
the Supreme Court of Pennsylvania would hold that the
economic loss doctrine extends to individual consumers.

Appellants also criticize Jones as being"inconsistent with
the purpose and rationale of the doctrine." Br. of Appellants
at 22-23. They argue that East River and REM Coal applied
the doctrine to contractual relationships between
commercial entities because the sophisticated business
enterprises in those cases not only understood the risks
involved in negotiating the terms of the manufacturer’s
liability, but also possessed comparable bargaining power

                                18


that enabled them to enter into fair, arms-length
agreements. See id. at 17-18. Appellants insist that the
underlying conditions present in East River and REM Coal
do not exist in transactions between ordinary consumers
and large corporations. See id. at 18. They explain that in
commercial relationships between consumers and car
manufacturers, the consumers lack bargaining power and
are effectively powerless in negotiating the terms of a car’s
warranty. See id. Thus, to the extent that appellants were
unable to enter into "informed, arms-length negotiations"
with Ford over the terms of their warranties, appellants
contend that the district court should not have applied the
economic loss doctrine to their fraud and statutory claims.

Although car purchasers -- whether ordinary consumers
or businesses -- may be unable to negotiate the specific
details of their automobile warranties, or may be able to
select among only limited options, purchasers certainly do
not lack bargaining power. Purchasers have the freedom to
chose a less expensive car with a limited warranty or a
more expensive car with a longer-term warranty, and they
often have the option of buying an extended warranty.
Moreover, purchasers may select among cars of various
manufacturers and consider the differences in warranties in
making their choice. Indeed, manufacturers may and do
advertise the advantage of their own warranties. And as the
Supreme Court stated in East River, "[w]hile giving
recognition to the manufacturer’s bargain, warranty law
sufficiently protects the purchaser by allowing it to obtain
the benefit of its bargain. The expectation damages
available in warranty for purely economic loss give a
plaintiff the full benefit of its bargain by compensating for
foregone business opportunities." East River , 476 U.S. at
873, 106 S.Ct. at 2303 (internal citation omitted).

Furthermore, appellants’ proposal to differentiate
between ordinary consumers and commercial entities would
prove to be difficult to apply in practice. First, as alluded to
above, businesses purchasing automobiles -- or any mass-
produced product, for that matter -- may have no greater
ability to negotiate the specific terms of a warranty than
ordinary consumers. Second, a plaintiff ’s sophistication
cannot be assumed simply because it is a business or

                                19


corporation as distinguished from an individual consumer.
Finally, if courts seek to avoid such baseless assumptions
by engaging in case-by-case, fact-intensive inquires to
determine the plaintiff ’s level of sophistication, they will be
drawn into the type of "difficult line-drawing process that
can only yield inconsistent results." REM Coal, 563 A.2d at
132-33.

At bottom, not only do Pennsylvania state court decisions
indicate that the Supreme Court of Pennsylvania likely
would apply the economic loss doctrine to transactions
involving ordinary consumers, but drawing a distinction
between commercial and noncommercial plaintiffs would be
entirely impracticable. Therefore, we conclude that the
district court properly held that the doctrine applies to
transactions between manufacturers and ordinary
consumers.

2. Intentional Fraud Exception

Appellants next challenge the district court’s order on the
grounds that it improperly applied the economic loss
doctrine to their fraudulent concealment and UTPCPL
claims, as they contend that pertinent Pennsylvania state
court decisions and federal district court opinions
interpreting Pennsylvania law do not support its holding.
Ford argues, however, that the district court, after
reviewing persuasive case law from other jurisdictions,
correctly predicted that the Supreme Court of Pennsylvania
would resist creating an exception for intentional fraud
actions.

Before examining decisions from other jurisdictions
addressing whether the economic loss doctrine bars claims
of intentional fraud, the district court first found a split in
authority among Pennsylvania federal district courts on the
issue. Appellants maintain, however, that there is no such
split arguing that the three decisions arising out of the
Eastern District of Pennsylvania that the court cited in
support of its finding are distinguishable. Appellants
explain that Factory Market, Inc. v. Schumer International,
Inc., 987 F. Supp. 387, 395, 397 (E.D. Pa. 1997), and Sun
Co., Inc. v. Badger Design & Constructors, Inc., 939 F.
Supp. 365, 370, 374 (E.D. Pa. 1996), involved negligent

                                 20


misrepresentation claims, not intentional fraud claims. In
addition, they argue that the passage in Sneberger v. BTI
Americas, Inc., No. Civ. A. 98-932, 1998 WL 826992, at *8
(E.D. Pa. Nov. 30, 1998), stating that fraud and negligent
misrepresentation actions are barred by the economic loss
doctrine was dicta supported by only one case, Eagle Traffic
Control v. Addco, 882 F. Supp. 417 (E.D. Pa. 1995), which
itself was a negligent misrepresentation case.

Appellants contend that, inasmuch as there is not a split
in authority among district courts interpreting Pennsylvania
law, the district court erred in relying on authority from
other jurisdictions in predicting how the Supreme Court of
Pennsylvania would decide the issue. Appellants submit
that the district court should have followed the holdings of
the other federal district courts in Pennsylvania to have
addressed the specific issue raised in this case-- namely,
whether claims for intentional fraud, as distinguished from
negligent misrepresentation, are barred by the economic
loss doctrine. See Peerless Wall & Window Coverings, Inc. v.
Synchronics, Inc., 85 F. Supp. 2d 519, 535 (W.D. Pa. 2000);
KNK Med.-Dental Specialities, Ltd. V. Tamex Corp. , Nos. Civ.
A. 99-3409, Civ. A. 99-5265, 2000 WL 1470665, at *5 (E.D.
Pa. Sept. 28, 2000); Polymer Dynamics, Inc. v. Bayer Corp.,
No. Civ. A. 99-4040, 2000 WL 1146622, at *7 n.5 (E.D. Pa.
Aug. 14, 2000); Montgomery County v. Microvote Corp., No.
Civ. A. 97-6331, 2000 WL 134708, at *7 (E.D. Pa. Feb. 3,
2000); N. Am. Roofing & Sheet Metal Co., Inc. v. Bldg. &
Constr. Trades Council of Phila. & Vicinity, AFL-CIO , No. Civ.
A. 99-2050, 2000 WL 230214, at *7 (E.D. Pa. Feb. 29,
2000); Sunquest Info. Sys., Inc. v. Dean Witter Reynolds,
Inc., 40 F. Supp. 2d 644, 658 (W.D. Pa. 1999); Auger v.
Stouffer Corp., No. 93-2529, 1993 WL 364622, at *5 (E.D.
Pa. Aug. 31, 1993); Palco Linings, Inc. v. Pavex, Inc., 755 F.
Supp. 1269, 1271 (M.D. Pa. 1990).

In the face of appellants’ string of district court decisions,
Ford first notes that the district court opinions are not
binding on this court, for we must give only Pennsylvania
state court decisions "proper regard." Ford then goes on to
argue that all of these cases are unavailing because they
can be traced back to Palco Linings, 755 F. Supp. at 1271,
which is not based on a Pennsylvania state court decision,

                                21


but on the Illinois Supreme Court opinion in Moorman
Manufacturing Co. v. National Tank Co., 435 N.E.2d 443 (Ill.
1982). See Peerless Wall, 85 F. Supp. 2d at 535; KNK Med.,
2000 WL 1470665, at *5; Polymer Dynamics, 2000 WL
1146622, at *7 n.5; Montgomery County, 2000 WL 134708,
at *7; N. Am. Roofing, 2000 WL 230214, at *7; Sunquest, 40
F. Supp. 2d at 658; Auger, 1993 WL 364622, at *5.

Ford also points out that the district courts in KNK
Medical, Polymer Dynamics, and Montgomery County -- like
the district court in this case -- explicitly recognized that
there was a split in authority on the issue. Moreover, as
Ford asserts, the three decisions lend questionable support
to appellants’ argument in favor of an intentional fraud
exception. For instance, KNK Medical is unavailing because
the court permitted the fraud claim only after concluding
that it was "sufficiently distinct from [the] contract claims."
KNK Med., 2000 WL 1470665, at *6. Polymer Dynamics is
not controlling because the court explicitly declined to
resolve the question after noting that the defendant did not
raise the doctrine as a defense. See Polymer Dynamics,
2000 WL 1146622, at *7 n.5. Finally, Montgomery County is
unreliable because the court emphatically stated that "the
economic loss doctrine bars the County’s recovery for both
negligent and intentional misrepresentation," but then
inexplicably reversed course and permitted the plaintiff ’s
intentional misrepresentation claim, perhaps out of an
abundance of caution in light of the apparent split in
authority. Montgomery County, 2000 WL 134708, at *7.

We are satisfied from our review of the case law Ford and
appellants cite that the law in Pennsylvania with respect to
the application of the economic loss doctrine to intentional
fraud actions remains unsettled, and the district court
opinions interpreting Pennsylvania law on the point provide
little guidance. As already noted, the Supreme Court of
Pennsylvania and the other Pennsylvania appellate courts
have not resolved the issue in a published opinion. The
Pennsylvania federal district court cases appellants and
Ford cite are of limited help, for not only is there an
apparent split among them, but these opinions address the
issue in a very conclusory fashion without providing any
explanation why the Supreme Court of Pennsylvania would

                                22


rule in a particular way. Moreover, as Ford points out,
these district court prognostications do not control our
prediction of how the Supreme Court of Pennsylvania would
settle the issue.

Having determined that the federal and state decisions
interpreting Pennsylvania law shed little light on the
question at issue, we next look outside the jurisdiction for
persuasive authority on the subject. See Hughes v. Long,
242 F.3d 121, 128 (3d Cir. 2001) ("In predicting how a
matter would be decided under state law we examine: (1)
what the Pennsylvania Supreme Court has said in related
areas; (2) the decisional law of the Pennsylvania
intermediate courts; (3) federal appeals and district court
cases interpreting state law; and (4) decisions from other
jurisdictions that have discussed the issues we face here.").

We start with the three opinions interpreting Florida,
Wisconsin, and Minnesota law that the district court cited
in its order. See Hoseline, Inc. v. U.S.A. Diversified Prods.,
Inc., 40 F.3d 1198, 1200 (11th Cir. 1998); Cooper Power
Sys., Inc. v. Union Carbide Chem. & Plastics Co., Inc., 123
F.3d 675, 682 (7th Cir. 1997); Nelson Distrib., Inc. v.
Stewart-Warner Indus. Balancers, a Div. of Stewart-Warner
Corp., 808 F. Supp. 684, 688 (D. Minn. 1992). Appellants
assert that these opinions are irrelevant, insisting that we
should disregard them because they "bear no relation to
this consumer fraud action." Br. of Appellants at 26 n.9.
Aside from referring to the opinions as "out-of-court
decisions," however, appellants fail to explain why the
opinions are inapposite. Instead, they simply comment that
the opinions underscore their argument that we already
have rejected that the economic loss doctrine is limited to
disputes between commercial enterprises. Notwithstanding
appellants’ position, these opinions squarely support the
district court’s holding, as they undeniably recognize that
the economic loss doctrine bars tort recovery for intentional
fraud claims. Nevertheless, we find that the opinions are
short on explanation and therefore provide little insight into
how the Supreme Court of Pennsylvania might resolve the
matter.

Appellants urge us to adopt the position appellants
advance because it represents the majority rule. In a

                                23


footnote in their reply brief, they cite 23 cases from other
federal and state jurisdictions recognizing some type of
fraud exception to the economic loss doctrine. See Br. of
Appellants at 10-12 n.6. After reviewing the opinions cited
in both parties’ briefs and conducting our own independent
research, we find most persuasive the well-developed
federal and state case law interpreting Michigan and
Wisconsin law regarding the economic loss doctrine. We
particularly are influenced by an emerging trend in these
and other jurisdictions "recogniz[ing] a limited exception to
the economic loss doctrine for fraud claims, but only where
the claims at issue arise independent[ly] of the underlying
contract." Raytheon Co. v. McGraw-Edison Co., Inc., 979 F.
Supp. 858, 870 (E.D. Wis. 1997).

The leading case is Huron Tool & Engineering Co. v.
Precision Consulting Services, Inc., 532 N.W.2d 541, 545
(Mich. Ct. App. 1995), in which a Michigan state appellate
court recognized an exception for fraud-in-the-inducement
claims, but only if the fraud is "extraneous to the contract,"
not "interwoven with the breach of contract." The court
acknowledged that "[f]raud in the inducement presents a
special situation where parties to a contract negotiate freely
--which normally would constitute grounds for invoking the
economic loss doctrine--but where in fact the ability of one
party to negotiate fair terms and make an informed decision
is undermined by the other party’s fraudulent behavior." Id.
The court limited the exception for fraud-in-the-inducement
claims, however, stating that "where the only
misrepresentation by the dishonest party concerns the
quality or character of the goods sold, the other party is
still free to negotiate warranty and other terms to account
for possible defects in the goods." Id. Accordingly, the court
held that the "plaintiff may pursue a claim for fraud in the
inducement extraneous to the alleged breach of contract."
Id. at 546.

Huron’s impact extends beyond Michigan. The Court of
Appeals for the Seventh Circuit relied on Huron when it
determined that there was no basis for treating an
intentional misrepresentation claim differently from a
negligent misrepresentation claim under Wisconsin law. See
Cooper Power, 123 F.3d at 682. Explaining that the plaintiff

                                24


was free to extract an express warranty from the
manufacturer to remedy any misrepresentation, whether
intentional or innocent, the court reasoned that intentional
"[m]isrepresentations . . . that ultimately concern the
quality of the products sold[ ] are properly remedied
through claims for breach of warranty." Id. The Huron
limitation also influenced the Court of Appeals for the
Eighth Circuit when it concluded that "[a] fraud claim
independent of the contract is actionable, but it must be
based upon a misrepresentation that was outside of or
collateral to the contract, such as many claims of
fraudulent misrepresentation." AKA Distrib. Co. v. Whirlpool
Corp., 137 F.3d 1083, 1086 (8th Cir. 1998). Finally, the
Florida Supreme Court explicitly embraced Huron ’s
distinction "between fraud extraneous to the contract and
fraud interwoven with the breach of contract" when it held
that "[w]here a contract exists, a tort action will lie for
either intentional or negligent acts considered to be
independent from acts that breached the contract." HTP,
Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So. 2d 1238,
1239-40 (Fla. 1996).

This approach is not without its critics, however, as at
least one district court in the Eastern District of Wisconsin
has challenged the Huron limitation on several grounds.
See Budgetel Inns, Inc. v. Micros Sys., Inc., 8 F. Supp. 2d
1137 (E.D. Wis. 1998) (Budgetel I); Budgetel Inns, Inc. v.
Micros Sys., Inc., 34 F. Supp. 2d 720 (E.D. Wis. 1999)
(Budgetel II). That court presented three reasons to support
its prediction that the Wisconsin Supreme Court would
reject Huron and conclude that fraud-in-the-inducement
claims as a rule are not barred by the economic loss
doctrine. First, it surmised that the practical effect of the
Huron limitation would be the complete elimination of the
fraud-in-the-inducement exception because fraudulent
inducement cases always involve misrepresentations
concerning the quality or characteristics of the subject
matter of the underlying contract. See Budgetel I, 8 F.
Supp. at 1146. See also Black’s Law Dictionary at 661 (6th
ed. 1990) (defining "fraud in the inducement" as
"[m]isrepresentation as to the terms, quality or other
aspects of a contractual relation . . . that leads a person to
agree to enter into the transaction with a false impression

                                25


or understanding of the risks, duties or obligations she has
undertaken"). Second, the court stated that fraudulent
inducement claims are, in reality, always independent of
the contract insofar as the fraudulent inducement must
occur before the formation of the contract. See Budgetel I,
8 F. Supp. 2d at 1147. Third, the court found that the
Huron limitation conflicted with the underlying policies of
the economic loss doctrine inasmuch as intentional
misrepresentations impede parties from freely allocating
economic risk between them. See id. at 1148.

Only eight months after the court decided Budgetel II,
another district court in the Eastern District of Wisconsin
upheld the Huron limitation and, in so doing, responded to
each of the criticisms of Huron in the Budgetel opinions.
See Rich Prod. Corp. v. Kemutec, Inc., 66 F. Supp. 2d 937,
977-80 (E.D. Wis. 1999). First, the court rejected the notion
that the limitation rendered the fraud-in-the-inducement
exception a nullity, maintaining that "[i]t is not difficult to
conceive of several scenarios giving rise to claims for fraud
in the inducement that survive a challenge under Huron."
See id. at 979. The court explained:

       For example, a company might falsely misrepresent its
       financial condition, or the level of its insurance
       coverage, in order to induce another company to enter
       into a contract. Such considerations, while they may
       be relevant when considering who[m] to do business
       with, do not concern the underlying subject matter of
       the contract or a party’s performance thereunder.
       Another example is representations regarding
       organizational form and status. A company may
       represent itself as a non-profit, charitable organization
       in order to induce another company to do business on
       terms more favorable than would otherwise be the
       case. Or someone doing business as a corporation may
       represent themselves as a sole proprietorship or
       partnership, inducing another party to do business
       thinking they have recourse against personal assets
       should a dispute develop. Such representations have
       nothing to do with the subject matter of the underlying
       contracts or the offending party’s performance
       thereunder, yet they may inflict damages upon the

                                26


       party that relies on them when deciding whether or not
       to do business. The Huron limitation may set the bar
       high, but it is not the death knell of fraud in the
       inducement claims between contracting parties.

Id.

Second, the Rich Products court stated that if fraudulent
inducement claims are exempted from the economic loss
doctrine because, as Budgetel asserted, they always arise
independently of a contract, then the economic loss
doctrine would be rendered a nullity, and tort law would
swallow contract law. The court explained that if"all claims
for fraud in the inducement are extraneous or independent
of the contract because they occur ‘prior to the formation of
the contract itself,’ . . . every breach of warranty claim
would be turned into a tort by a simple affidavit stating, in
effect, that the warranty was spoken before it was written."
Id. (internal citation omitted). The court also warned that
"written disclaimers of warranties could be voided after the
fact by the same affidavit, so long as the oral
representations preceded the contract," thus causing chaos
and uncertainty in commercial transactions. Id.

Third, the Rich Products court rejected the Budgetel
court’s concerns that the Huron limitation conflicts with the
underlying purpose of the economic loss doctrine by
allowing intentional misrepresentations to hamper the
bargaining process and prevent the free allocation of
economic risk by the parties. It explicated that"[w]arranties
of merchantability and fitness for a particular purpose are
common hedges against the carelessness or outright
dishonesty of a party’s representations regarding the
subject matter of a contract." Id. at 980.

The district court in this case seems to have followed the
Huron line of cases when it found "more persuasive the
reasoning of courts that do bar fraud claims that are
intertwined with contract claims and the resulting loss has
been economic." Werwinski, 2000 WL 1201576, at *5
(emphasis added). Indeed, because appellants’ fraudulent
concealment claims relate to "the quality or character of the
goods sold," the claims clearly are "intertwined" with, and
not "extraneous" to, their breach of warranty claims. Huron,

                                27


532 N.W.2d at 545. Appellants’ fraud claims are
"undergirded by factual allegations identical to those
supporting their breach of contract counts." Pub. Serv.
Enter. Group, Inc. v. Phila. Elec. Co., 722 F. Supp. 184, 201
(D.N.J. 1989). Moreover, the alleged fraudulent
concealment "did not cause harm to the plaintiffs distinct
from those caused by the breach of contract; and the mere
fact that disclosure of certain facts to plaintiffs may have
allowed them to take corrective action does not change the
result." Id.

In addition to exploring persuasive authority from other
jurisdictions, we also examine the justifications presented
by the parties in support of their competing positions. Ford
argues that appellants have failed to articulate any
rationale for carving out an exception for intentional fraud
actions when the alleged misrepresentation relates to the
quality or properties of the subject matter of the underlying
contract. See Br. of Appellee at 28. In particular, Ford
submits that neither appellants nor any of the opinions
they cite provide any justification for treating intentional
fraud actions differently from negligent misrepresentation
actions, which both parties agree the economic loss
doctrine bars under Pennsylvania state case law. Ford
explains that from the perspective of a buyer, "intentional
(fraudulent) and innocent (negligent) misrepresentations
have the same effect," and a buyer can insure against both
types of harms through express warranties and statutory
warranties. Id. at 30. As Ford opines, "just as the
purchaser can protect itself in the contractual language
against the other party’s innocent, though wrong
representations, so too can it protect itself -- by means of
warranty -- against the other party’s intentionally wrong
representations about a product’s performance or
durability." Id. (internal citations and internal quotation
marks omitted).

The essence of appellants’ rationale for an intentional
fraud exception is that applying the economic loss doctrine
to such claims would not serve the doctrine’s purpose of
preventing tort law from reallocating risks between parties
who fairly have negotiated an arms-length contract. First,
appellants maintain that a transaction has not been

                                28


negotiated fairly -- and therefore does not allocate risk
fairly -- if one party has made intentional false
misrepresentations to the other. Second, appellants explain
that "a party making an intentional misrepresentation is in
a better position to assess the true risks associated with a
contract and therefore should bear the risk of liability for a
fraud claim." Amico v. Radius Communications, Inc., No.
1793, slip op. at 7 (C.P. Phila. Jan. 9, 2001) (attached as
Exhibit B to Reply Brief of Appellants). Finally, appellants
submit that parties to a contract should not have to
anticipate possible intentional misrepresentations by the
other party when negotiating the allocation of risk between
the parties:

       Although it makes sense to allow parties to allocate the
       risk of mistakes or accidents that lead to economic
       losses, it does not make sense to extend the [economic
       loss] doctrine to intentional acts taken by one party to
       subvert the purposes of the contract. Although
       theoretically parties could include contractual
       provisions discussing the allocation of responsibility
       when one party intentionally lies or misleads the other,
       it would not be conducive to amicable commercial
       relations to require parties to include such clauses in
       contracts. Expressing such a basic lack of trust in the
       other party would be likely to sour a deal from the
       start.

       A party to a contract cannot rationally calculate the
       possibility that the other party will deliberately
       misrepresent terms critical to that contract. Public
       policy is better served by leaving the possibility of an
       intentional tort suit hanging over the head of a party
       considering outright fraud . . . .

First Republic Bank v. Brand, No. 147, slip op. at 13 (C.P.
Phila. Dec. 19, 2000) (quoting Stoughton Trailers, Inc. v.
Henkel Corp., 965 F. Supp. 1227, 1236 (W.D. Wis. 1997))
(attached as Exhibit C to Reply Brief of Appellants).

Both parties provide plausible explanations for their
respective positions. On the one hand, appellants’ policy
justifications for creating an intentional fraud exception are
somewhat persuasive, as it makes sense to provide parties

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who have been victims of another party’s intentionally
fraudulent behavior special protections under tort law in
order to deter such behavior. On the other hand, appellants
are unable to explain why contract remedies are inadequate
to provide redress when the alleged misrepresentation
relates to the quality or characteristics of the goods sold. As
Ford points out, the mental state of the wrongdoer is
irrelevant from the buyer’s perspective: a plaintiff suffers
the same harm -- i.e., economic losses-- regardless of
whether the misrepresentation is innocent, negligent, or
intentional. Moreover, express warranties and state
warranty statutes can provide for compensation to be
awarded for these economic losses, regardless of whether
the misrepresentation is innocent, negligent, or intentional.
Thus, the need to provide a plaintiff additional tort
remedies is diminished greatly when (1) the plaintiff can be
made whole under contract law, and (2) allowing additional
tort remedies will impose additional costs on society. As we
have stated previously, "when loss of the benefit of a
bargain is the plaintiff ’s sole loss, . . . the undesirable
consequences of affording a tort remedy in addition to a
contract-based recovery [are] sufficient to outweigh the
limited interest of the plaintiff in having relief beyond that
provided by warranty claims." Duquesne Light , 66 F.3d at
618-19 (internal quotations omitted).

Furthermore, the district court based its prediction as to
how the Supreme Court of Pennsylvania would resolve the
issue on sound deductive reasoning. The district court
applied the economic loss doctrine to the fraudulent
concealment claims after recognizing the willingness of
Pennsylvania courts to restrict intentional tort claims that
overlap with contract claims. In particular, the district
court cited the "gist of the action" doctrine 8 as evidence of
_________________________________________________________________

8. As Phico Insurance Co. v. Presbyterian Medical Services Corp., 663
A.2d 753, 757 (Pa. Super. Ct. 1995), articulated, the "gist of the action"
doctrine bars plaintiffs from bringing a tort claim that merely replicates
a claim for breach of an underlying contract. Appellants spend several
pages of their opening brief challenging the district court’s conclusion
with respect to the "gist of the action" doctrine. Appellants misinterpret
the district court’s opinion, however, as relying on the "gist of the action"
doctrine as an alternate basis for dismissing appellants’ fraud claims. As
Ford correctly points out, the district "court merely cited that rule by
analogy as an indication of the Pennsylvania Supreme Court’s likely
leanings if presented with this issue in the context of the analogous
economic loss doctrine." Br. of Appellee at 28-29 n.11.

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the Pennsylvania courts’ penchant for dismissing fraud
claims that simply restate breach of contract claims. In the
absence of any pertinent Pennsylvania case law on the
subject, the district court aptly predicted that the Supreme
Court of Pennsylvania would apply the economic loss
doctrine to intentional fraud cases by drawing an analogy
from Pennsylvania’s acceptance of the "gist of the action"
doctrine. Such a conclusion is congruent with our past
recognition that Pennsylvania state courts have exhibited a
"lack of hospitality to tort liability for purely economic loss."
Aloe Coal Co. v. Clark Equip. Co., 816 F.2d 110, 119 (3d
Cir. 1987). See also Pub. Serv. Enter. Group, Inc., 722 F.
Supp. at 193 (recognizing "that Pennsylvania law is hostile
to the recovery of economic losses in tort").

Finally, even if we were torn between two competing yet
sensible interpretations of Pennsylvania law and did not
find the district court’s deductive reasoning to be
persuasive, we should opt for the interpretation that
restricts liability, rather than expands it, until the Supreme
Court of Pennsylvania decides differently. See City of
Philadelphia v. Beretta U.S.A. Corp., 277 F.3d 415, 421 (3d
Cir. 2002); Home Valu, Inc. v. Pep Boys, 213 F.3d 960, 965
(7th Cir. 2000) ("Where, as in this case, we are faced with
two equally plausible interpretations of state law, we
generally choose the narrower interpretation which restricts
liability, rather than a more expansive interpretation which
creates substantially more liability." (internal quotation
marks omitted)). The economic loss doctrine is designed to
place a check on limitless liability for manufacturers and
establish clear boundaries between tort and contract law.
Carving out an exception for intentional fraud would
eliminate that check on liability and blur the boundaries
between the two areas of law, thus exposing manufacturers
to substantially greater liability. In light of these realities,
we select the path that limits liability by rejecting
appellants’ request for an intentional fraud exception.

Based on these reasons, we believe the district court
correctly applied the economic loss doctrine to appellants’
fraudulent concealment claims. Therefore, we will affirm the
district court’s order with respect to appellants’ common
law fraudulent concealment claims.

                                31


3. Statutory Fraud Claims

Appellants next argue that the district court erred in
applying the economic loss doctrine to their fraud claims
under the UTPCPL. Ford responds that the district court
was correct when it ruled that there "does not seem to be
an[y] reason for treating a common law fraudulent
concealment claim differently from a statutory claim under
a consumer protection statute." Werwinski, 2000 WL
1201576, at *5 (citing Weather Shield Mfg., Inc. v. PPG
Indus., Inc., 1998 WL 469913, at *5 (W.D. Wis. June 11,
1998)).

Appellants attack the district court’s conclusion by
attempting to distinguish the case on which the district
court relied. Appellants explain that the plaintiff in Weather
Shield was a business that would be barred from bringing
a claim under the Pennsylvania UTPCPL, which only
applies to products purchased for "personal, family or
household purposes." Pa. Stat. Ann. tit. 73,S 202-9.2(a).
Appellants do not explain how this fact materially
diminishes the persuasiveness of Weather Shield on the
issue of whether statutory fraud claims should be treated
the same way as common law fraud claims under the
economic loss doctrine.

Notwithstanding appellants’ attempt to distinguish the
case, Weather Shield provides persuasive authority for
applying the economic loss doctrine to statutory
misrepresentation claims. As the district court in Weather
Shield explicates, "exempting [statutory fraud] claims from
the effects of the economic loss doctrine would virtually
nullify the doctrine since [the statute] is broad enough to
encompass nearly every misrepresentation claim in the
commercial sales context, and claims arising from product
failure can readily be recast as misrepresentation claims."
Weather Shield, 1998 WL 469913, at *6. Ford also offers in
support of its position Flagg Energy Development Corp. v.
General Motors Corp., 709 A.2d 1075, 1088 (Conn. 1998),
in which the Connecticut Supreme Court held that the
economic loss rule barred plaintiffs’ claims under the
Connecticut Unfair Trade Practices Act because the claims
"depend[ed] upon the allegations of fact that are identical to
those asserted in their [contract] claims."

                                32


In light of the persuasive authority treating common law
and statutory fraud claims similarly under the economic
loss doctrine, and appellants’ inability to proffer contrary
authority, we do not believe that the district court erred in
applying the doctrine to appellants’ UTPCPL claims.
Inasmuch as the same policy justifications for applying the
doctrine to appellants’ common law intentional fraud claims
support the doctrine’s application to appellants’ UTPCPL
claims, we will affirm the district court’s order with respect
to these statutory claims.9

IV. CONCLUSION

For the foregoing reasons, we will affirm the orders
entered by the district court on April 11, 2000, and
December 12, 2000.
9. In a footnote at the end of its decision, the district court concluded
that the Pennsylvania two-year statute of limitations barred the Coffeys’
and Daria Zaharchuk’s common law fraud claims. See Werwinski, 2000
WL 1201576, at *6 n.5. The court decided that appellants’ claims arose
when they began experiencing problems with their transmissions,
explaining that "a fraud claim arises when the plaintiff knew or should
have known through the exercise of reasonable diligence of the injury
stemming from the alleged fraud." Id. Accordingly, the court determined
that the fraud claims of any plaintiffs who experienced transmission
problems before January 21, 1998 (two years before the filing of the
complaint) were time barred.

Appellants contend that the district court’s ruling was erroneous
because the discovery rule tolled the limitations period until they learned
that a latent defect was causing their transmission problems. Appellants
insist that when their cars failed, they did not know and had no reason
to suspect that the transmission contained latent defects or that Ford
knew about the defects and fraudulently concealed them from Ford
automobile owners. Consequently, they argue that the statute of
limitations did not begin to run on their fraudulent concealment claims
until they discovered Ford’s fraudulent behavior. Having determined that
the economic loss doctrine bars the fraudulent concealment claims, we
need not resolve this matter.

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A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit

                                34
