                                                                                                                           Opinions of the United
2008 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


8-18-2008

Reyton Cedar Knoll v. HPG Intl Inc
Precedential or Non-Precedential: Non-Precedential

Docket No. 07-2955




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                                                 NOT PRECEDENTIAL

        UNITED STATES COURT OF APPEALS
             FOR THE THIRD CIRCUIT
                  ___________

                       No. 07-2955
                       ___________

            REYTON CEDAR KNOLL, LLC,

                                            Appellant

                             v.

              HPG INTERNATIONAL INC


                       ___________

On Appeal from an Order of the United States District Court
         for the District of Middle Pennsylvania
                      (06-cv-00159)
      District Judge: Honorable William J. Nealon
                       ___________

       Submitted Under Third Circuit L.A.R. 34.1(a)
                     July 25, 2008

  Before: MCKEE, FUENTES, and WEIS Circuit Judges.

             (Opinion Filed: August 18, 2008)


               OPINION OF THE COURT
FUENTES, Circuit Judge:

       Reyton Cedar Knoll, LLC (“Reyton”) appeals from the District Court’s final order,

granting HPG International, Inc.’s (“HPG”) motion for summary judgment. Reyton

argues that the District Court erred in predicting that the Kentucky Supreme Court would

apply the economic loss doctrine which bars Reyton’s recovery under tort law. Finding

that the record supports the District Court’s ruling, we affirm.

       Throughout the 1980's and 1990's, Zamias Services (“Zamias”) developed,

constructed and owned Ashland Galleria Mall (“the Mall”) in Ashland, Kentucky.

During construction, Zamias hired Universal Roofing as the roofing contract for the Mall.

In 1989, Dynamit Nobel of America, Inc. (“Dynamit”), a predecessor of HPG, provided

roof membrane to Universal Roofing for the construction of the Mall. HPG provided

Zamias a 15-year warranty for the roof that expired in August 2004. In November 2004,

Reyton, the appellant in this matter, purchased the Mall from Zamias. A month later, the

Mall roof shattered, resulting in extensive property damage.

       As a result of the property loss, Reyton sued HPG alleging negligence and strict

liability under Kentucky law.1 Reyton alleged that the roof shatter was caused by defects

in the roof membrane provided by Dynamit. Reyton claimed $1.8 million in damages to

the interior of the Mall and $1.2 million to replace the roof. After discovery, Reyton

filed a motion for summary judgment, which the District Court denied after concluding



       1
           The parties do not dispute that Kentucky law governs this case.

                                             -2-
that the economic loss doctrine 2 barred recovery in tort for the loss sustained to the roof

and to the interior of the Mall. Shortly thereafter, in a separate opinion, the District Court

granted HPG’s motion for summary judgment after concluding that Reyton alleged no

viable theory of recovery.

       Reyton appeals, arguing that the District Court erred in granting HPG’s motion for

summary judgment.3 Specifically, Reyton alleges that Kentucky would not adopt the

economic loss doctrine and instead would apply the “destructive occurrence test” or

“damaging event test.” 4 In the alternative, if the economic loss doctrine applies, Reyton

argues that only the roof is the product and therefore they are entitled to recover for

damage to the interior of the mall. Additionally, Reyton has requested that we certify the

question of whether Kentucky would adopt the economic loss doctrine to the Kentucky

Supreme Court.5


       2
        The “economic loss doctrine” is a judicially created doctrine that bars recovery
under tort theory when the parties could have contracted for losses, such as those that
occurred in this case.
       3
         We have jurisdiction under 28 U.S.C. § 1291. The District Court exercised
jurisdiction based on diversity of citizenship pursuant to 28 U.S.C. § 1332.
       4
         The “destructive occurrence test” or “damaging event test”, as cited by Reyton,
allows for recovery under tort theory if there is a destructive occurrence (or damaging
event). See Real Estate Mktg. v. Franz, 885 S.W.2d 921, 926 (Ky. 1994) (“we do
recognize that to recover in tort one cannot prove only that a defect exists; one must
further prove a damaging event”).
       5
        We exercise plenary review over the District Court’s grant of summary judgment,
applying the same test as required by the District Court in their initial determination.
Caprio v. Bell Atl. Sickness & Accident Plan, 374 F.3d 217, 220 (3d Cir. 2004). To grant
summary judgment, the District Court views the facts in the light most favorable to the
                                           -3-
       The primary issue presented on appeal is whether the District Court correctly

predicted that the Kentucky Supreme Court would adopt the economic loss doctrine

barring Reyton’s recovery based on tort theory. While we lack a clear statement from the

Kentucky Supreme Court on the adoption of the economic loss issue, there are multiple

sources of persuasive authority available. In Mt. Lebanon Pers. Care Home, Inc. v.

Hoover Universal, Inc., 276 F.3d 845, 848-49 (6th Cir. 2002), a case involving a property

loss in Kentucky, the Sixth Circuit observed that a majority of jurisdictions and the

weight of the academic community favor application of the economic loss doctrine to

business purchases. In light of Mt. Lebanon, we agree with the District Court that if

Kentucky’s highest court were faced with the same facts as the case before us, it would

adopt and apply the economic loss doctrine. Thus, we will affirm substantially for the

thorough and persuasive reasons stated by Judge Nealon in his decision and add only the

following comments.

       Having determined that the Kentucky Supreme Court would apply the economic

loss doctrine, the District Court identified the entire mall as the product. Based on his

review of Mt. Lebanon, Judge Nealon concluded that the Kentucky Supreme Court would

hold that the product for the economic loss doctrine purposes includes the entire unit for

which a party to a business transaction has the ability to distribute risk by contract and to




non-moving party and must find that “there is no genuine issue as to any material fact and
the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c);
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
                                            -4-
insure against loss. In Mt. Lebanon, the court applied the economic loss doctrine to an

entire nursing home concluding that the economic loss doctrine “permits recovery for

damages to property other than the product purchased but denies recovery for damages to

the product itself.” Id. at 849. The court identified the entire nursing home as the product

because Mt. Lebanon had the ability to allocate risk contractually and/or insure against

loss with respect to the entire nursing home. Id. at 851. Similarly, here, Reyton

contracted for the purchase of the Mall and could have allocated their risk in a contract or

insure against loss. Thus, we agree with the District Court that the Mall is the product

that the parties contracted for and recovery for damage to the entire mall is barred by the

economic loss doctrine.

       Alternatively, Reyton argues that the Kentucky Supreme Court would adopt the

“destructive occurrence” or “damaging event” test. The “destructive occurrence test”

referred to by Reyton, allows for recovery under tort theory if there is a destructive

occurrence (or damaging event). Having determined that the Kentucky Supreme Court

would apply the economic loss doctrine, recovery in tort is barred including economic

losses caused by a “destructive occurrence.”

       Finally, Reyton has requested certification to the Kentucky Supreme Court to

determine if they would apply the economic loss doctrine to the facts of this case.

Because we agree with Judge Nealon’s application of Mt. Lebanon, we discern no need to

request certification. Moreover, as Judge Nealon noted in his opinion, the Kentucky

Supreme Court declined to hear a similar certification request brought in Bowling Green
                                            -5-
Mun. Utilities v. Thompson Lumber Co., 902 F. Supp. 134, 136 (W.D. Ky. 1995) and

there is no reason to believe it would grant one here.

       For the foregoing reasons, we affirm the District Court’s final order granting

Defendant HPG’s motion for summary judgment and denying certification to the

Kentucky Supreme Court.




                                            -6-
