Memorial Hermann Healthcare System, Inc. v. Eurocopter Deutschland, GmbH

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
April 11, 2008

No. 07-40994 Charles R. Fulbruge III
Summary Calendar Clerk

MEMORIAL HERMANN HEALTHCARE SYSTEM INC; UNITED STATES
AVIATION UNDERWRITERS INC, as Managers for United States Aircraft
Insurance Group

Plaintiffs - Appellants
v.

EUROCOPTER DEUTSCHLAND, GMBH

Defendant - Appellee

Appeal from the United States District Court
for the Southern District of Texas, Galveston
USDC No. 3:06-CV-438

Before WIENER, GARZA, and BENAVIDES, Circuit Judges.
BENAVIDES, Circuit Judge:
Memorial Hermann Healthcare Systems, Inc. (“Memorial Hermann”) and
United States Aviation Underwriters, Inc. (“USAU”) appeal the dismissal of
their post-sale negligence claim against Eurocopter Deutschland (“Eurocopter”).
Memorial Hermann and USAU (collectively, “Appellants”) claim that the district
court erred when it refused to carve out an exception for post-sale negligence
claims to Texas’s economic loss rule. For the reasons below, we AFFIRM.
I.
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Memorial Hermann owned and operated a Eurocopter BK 117
helicopter that it bought from the manufacturer, Eurocopter. On July 14,
2005, the helicopter’s left door separated from the helicopter and struck its
rotor blades. The impact severely damaged the helicopter but caused no
additional harm or injuries. USAU, Memorial Hermann’s insurer,
purportedly paid Memorial Hermann more than $100,000 under its policy. In
addition, Memorial Hermann claims that it suffered uninsured losses in
excess of $100,000.
On July 5, 2006, Appellants brought suit against Eurocopter for post-
sale negligence.1 Appellants claimed that, by voluntarily issuing safety
warnings and updates to its customers, Eurocopter assumed a duty to warn
its customers of defects to its products. According to Appellants, Eurocopter
breached this duty when it negligently failed to warn Memorial Hermann of a
potential door defect even though it had prior knowledge of a similar accident
involving another BK 117 helicopter.
Eurocopter subsequently moved to dismiss on two grounds: (1)
Eurocopter contended that it did not have a duty to warn its customers of
defects discovered after the helicopter was manufactured; and (2) Eurocopter
claimed that, even if it had this duty, Texas’s economic loss rule barred
Appellants from recovering only economic losses. On August 23, 2007, the
district court agreed with Eurocopter that Texas’s economic loss rule
precluded recovery and dismissed Appellants’ claim.
II.

1
In their complaint, Appellants seemingly pleaded various product liability and
negligence claims. But when Eurocopter moved to dismiss the complaint, Appellants
responded only as to their post-sale negligence claim. Therefore, in granting Eurocopter’s
motion to dismiss, the district court determined that Appellants pleaded only a post-sale
negligence claim and ordered Appellants to amend their complaint if they wanted to assert
other claims. Appellants did not amend their complaint and now appeal only the dismissal of
their post-sale negligence claim.

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A party’s conduct may often ostensibly implicate both contractual
obligations and various tort duties. Under Texas’s economic loss rule,
however, no duty in tort exists when plaintiffs have suffered only economic
losses. Hou-Tex, Inc. v. Landmark Graphics, 26 S.W.3d 103, 107 (Tex. App.
2000). Therefore, in Texas, the economic loss rule bars plaintiffs from
“recover[ing] economic losses resulting from a defective product based on a
negligence theory.” Hininger v. Case Corp., 23 F.3d 124,126 (5th Cir. 1994).
Appellants invite us to carve out an exception to Texas’s economic loss
rule for post-sale negligence claims. We decline this invitation. The Texas
Supreme Court has unequivocally adopted a broad interpretation of the
economic loss rule. According to the Texas Supreme Court, “the nature of the
injury” may preclude plaintiffs from seeking relief in tort, and “[w]hen the
injury is only the economic loss to the subject of a contract itself, the action
sounds in contract alone.” Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617,
618 (Tex. 1986). Notwithstanding this categorical language, Appellants
contend that we can carve out an exception to Texas’s economic loss rule for
post-sale negligence claims. The gravamen of Appellants’ argument is that
the Texas Supreme Court has not explicitly rejected an exception to the
economic loss rule for post-sale negligence claims. Therefore, Appellants
claim that we are free to create this exception under the guise of making an
“Erie guess” as to what we believe the Texas Supreme Court would likely do.
The problem is that, in hazarding an Erie guess, “[o]ur task is to
‘attempt to predict state law, not to create or modify it.’” Hermann Holdings
Ltd. v. Lucent Tech., Inc., 302 F.3d 552, 558 (5th Cir. 2002) (quoting United
Parcel Serv., Inc. v. Weben Indus., 794 F.2d 1005, 1008 (5th Cir. 1998)). The
practical effect of adopting an exception like the one Appellants propose is the
creation of a previously nonexistent state law cause of action. Therefore,
Appellants carry a heavy burden to assure us that we would not be making

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law because the Texas Supreme Court would likely recognize their proposed
exception. Appellants failed to carry this burden here.
“In making an Erie guess, we defer to intermediate state appellate
court decisions, ‘unless convinced by other persuasive data that the highest
court of the state would decide otherwise.’” Hermann Holdings, 302 F.3d at
558 (quoting First Nat’l Bank of Durant v. Trans Terra Corp. Int’l, 142 F.3d
802, 809 (5th Cir. 1998)). Here, Appellants readily acknowledged that no
Texas court has ever recognized an exception to the economic loss rule for
post-sale negligence claims. To support their proposed exception, Appellants
marshaled dicta and cases addressing the application of the economic loss
rule in federal maritime cases. This “data,” however, is unpersuasive
because, as Appellants admitted, many courts have explicitly refused to
recognize an exception to the economic loss rule for post-sale negligence
claims. See, e.g., Sea-Land Serv., Inc. v. Gen. Elec. Co., 134 F.3d 149, 156 (3d
Cir. 1986) (declining to recognize an exception to the economic loss rule for
post-sale negligence claims in federal maritime law); Airport Rent-A-Car, Inc.
v. Prevost Car, Inc., 660 So. 2d 628, 632 (Fla. 1995) (refusing to adopt an
exception to Florida’s economic loss rule for post-sale negligence claims).
Moreover, of the three cases that recognized this exception, only one, Brown
v. Eurocopter S.A., 143 F. Supp. 2d 781 (S.D. Tex. 2001), is seemingly still
good law, and that case was decided by the very district court judge that

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dismissed Appellants’ claim here.2 We refuse to carve out an exception to
Texas’s economic loss rule on the basis of this one district court case alone.
Finally, Appellants contend that we should recognize their proposed
exception because it would provide consumers greater protection. This
argument fails because implicit in the economic loss rule is the premise that
“[t]he tort concern with safety is reduced when an injury is only to the
product itself.” East River, 476 U.S. at 871. In other words, the economic loss
rule presupposes that consumers do not need this “special protection” in cases
where only the product was damaged. See id. Because Appellants have failed
to provide a meaningful difference between post-sale negligence claims and
other negligence claims, we are far from convinced that the Texas Supreme
Court would recognize Appellants’ proposed exception.
III.
For the reasons stated above, we AFFIRM.

2
In arguing that federal courts have recognized an exception to the economic loss rule
for post-sale negligence claims in maritime cases, Appellants cite the holdings in both
McConnell v. Caterpillar Tractor Co., 646 F. Supp. 1520 (D.N.J. 1986), and Miller Industries
v. Caterpillar Tractor Co., 733 F.2d 813 (11th Cir. 1984). Appellants are correct that both
cases refused to apply the economic loss rule to post-sale negligence claims on the premise that
they are distinguishable from other tort claims. Miller, 733 F.2d at 818; McConnell, 646 F.
Supp. at 1526. The Third Circuit, however, rejected McConnell in Sea-Land Service, Inc. and
explicitly refused to recognize an exception to the economic loss rule for post-sale negligence
claims. 134 F.3d at 156.
Miller is also seemingly no longer good law. The United States Supreme Court adopted
the economic loss rule in East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S.
858 (1986). Because Miller predates East River, the exception recognized in Miller Industries
arguably has little force. This is particularly true in light of the fact that the Court was aware
of Miller, having cited it as an example of cases where courts have refused to apply the
economic loss rule. Id. at 863 n.1. If the Court had agreed with the holding in Miller, it
presumably also would have distinguished post-sale negligence claims from other negligence
claims. Instead, the Court formulated the economic loss rule in broad language that left no
room for this distinction. Id. at 871.

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