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Alloway v. General Marine Industries

March 8, 1996

SAMUEL P. ALLOWAY, III, AND NEW HAMPSHIRE INSURANCE CO., PLAINTIFFS-APPELLANTS,
v.
GENERAL MARINE INDUSTRIES, L.P., DEFENDANT-RESPONDENT, AND MULLICA RIVER BOAT BASIN, DEFENDANT.



On appeal from the Superior Court of New Jersey, Law Division, Burlington County.

Approved for Publication March 8, 1996.

Before Judges King, Kleiner and Humphreys. The opinion of the court was delivered by Kleiner, J.A.D.

The opinion of the court was delivered by: Kleiner

The opinion of the court was delivered by KLEINER, J.A.D.

Plaintiffs Samuel P. Alloway, III, and New Hampshire Insurance Co. appeal from an order dismissing their complaint filed against defendant General Marine Industries, L.P. The motion Judge concluded that plaintiffs' products liability claim for economic loss was not cognizable under New Jersey law and that plaintiffs' claim was barred by 11 U.S.C.A. § 363 of the Bankruptcy Code.

I

In October 1989, Glasstream Boats, Inc., (Glasstream) filed a bankruptcy petition in the United States Bankruptcy Court for the Middle District of Georgia. On March 30, 1990, under § 363 of the Bankruptcy Code, Glasstream sold its assets to GAC Partners, L.P. GAC Partners, L.P., is the former name of defendant, General Marine Industries, L.P. (GMI). *fn1

On July 14, 1990, Alloway purchased a Century Grande XL boat from defendant retailer Mullica River Boat Basin (Mullica) for $61,070. Century Boats (Century), a division of Glasstream, manufactured the boat. Mullica delivered the boat to Alloway on approximately July 26, 1990. On July 25, 1990, plaintiff, New Hampshire Insurance Co. (New Hampshire), issued a comprehensive insurance policy to Alloway covering the boat. The boat sank on approximately October 15, 1990.

Alloway paid his deductible of $2,490 and New Hampshire paid $40,106.63 to repair the boat, as required under the insurance policy. After repairing the boat, Alloway received $38,770 for the boat as a trade-in for the purchase of a new boat.

In his original complaint, Alloway asserted three theories of recovery. In count one, Alloway alleged that he purchased, from Mullica, a boat with a warranty that provided for "repair or replacement of any part found to be defective." He alleged that Mullica was "unable and/or unwilling" to honor the warranty, and that he suffered a resulting economic loss. In count two, he alleged that Century manufactured a defective boat and that as a result of the defect, he suffered an economic loss. In count three, Alloway alleged that Glasstream "negligently manufactured and inspected" the boat and Mullica "failed to identify the defect in [the boat] in an inspection completed prior to the delivery" of the boat to plaintiff. Plaintiff Alloway alleges economic loss as a result of the negligence. *fn2

After Alloway filed his complaint, he assigned all of his claims against defendants to plaintiff New Hampshire, excluding his claim for loss in value of the boat. New Hampshire, as an assignee, filed an amended complaint and asserted claims against defendants by repeating the allegations originally asserted by Alloway in counts two and three of the original complaint.

Alloway demanded as damages the "difference in value between the price paid for the boat and the market value of the boat in its defective condition," the insurance deductible, attorney's fees and costs. New Hampshire demanded $40,106.63, the amount it paid to repair the boat.

GMI moved to dismiss plaintiffs' complaints, arguing that plaintiffs did not have a products liability or Uniform Commercial Code (UCC) warranty claim for economic loss and that plaintiffs' suit was barred by 11 U.S.C.A. § 363 (§ 363), a section of the United States Bankruptcy Code (Code). After oral argument, the motion Judge granted GMI's motion, holding that plaintiffs' only remedy was for breach of warranty under the UCC, and that plaintiffs' products liability and UCC warranty claims were barred by § 363.

The motion Judge dismissed plaintiffs' products liability and negligence claims, stating:

I conclude that successor liability under the Ramirez doctrine . . . does not apply to consumer buyers suing for economic loss only to a product which they have purchased. . . . Alloway . . . cannot reach GMI on the facts here . . . . The UCC clearly governs this relationship. . . . But for the bankruptcy of Glasstream, Alloway could have reached Glasstream and its Century Boat division, but bankruptcy, in fact, did intervene. GMI . . . bought the assets out of bankruptcy subject to an order . . . making the purchase free and clear of all claims. . . . In this instance, that purchase of assets simply does not make liable for all of Glasstream's old customers on their various warranty claims for economic loss.

In reaching this Conclusion, the Judge either did not consider or declined to follow Santor v. A & M Karagheusian, Inc., 44 N.J. 52, 207 A.2d 305 (1965) (holding that a consumer can institute a products liability suit for economic loss to the product). Instead, he relied primarily on Spring Motors v. Ford Motor Co., 98 N.J. 555, 489 A.2d 660 (1985) (holding that a commercial buyer of defective goods cannot maintain a strict liability or negligence suit for economic loss to the product, as the remedy is a breach of warranty suit under the UCC), and D'Angelo v. Miller Yacht Sales, 261 N.J. Super. 683, 619 A.2d 689 (App. Div. 1993) (extending Spring Motors to consumer transactions and holding that consumers cannot institute a products liability suit for direct economic loss to the product resulting from conduct that constitutes a breach of express or implied warranties because the exclusive remedy is under the UCC). The Judge concluded that plaintiffs could not institute a strict liability claim for economic loss, citing D'Angelo, and that the Ramirez successor liability doctrine only applied to personal injury cases.

Plaintiffs argue that: (1) a consumer can assert a products liability claim for economic loss to a product under Santor; (2) a consumer who institutes a products liability claim for economic loss to a product can proceed against the manufacturer's successor under the doctrine established in Ramirez v. Amsted Indust., 86 N.J. 332, 431 A.2d 811 (1981); and (3) a consumer's products liability claim for economic loss against a successor that purchased a bankrupt corporation's assets in a bankruptcy proceeding is not precluded by § 363 of the Bankruptcy Code (Code). We agree and reverse.

II

In Santor, Daniel Santor purchased a carpet which turned out to be defective. 44 N.J. at 55. He sued the manufacturer (not the distributor) and recovered $1,512, the carpet's lost value. Ibid. We reversed the trial court, stating that "absent personal injury or damage to health consequent upon use of the product . . . there is no action in this State on the part of a purchaser of goods for breach of warranty in respect of their quality or fitness for use except as against the party from whom he has ...


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