Apr 4, 2012 | Car Accidents, Personal Injury, Uncategorized
This SC Supreme Court case discusses the availability of different courts for different jurisdictional amounts. Magistrate’s Court is the entry level court for relatively minor disputes. The jurisdictional limit is now $7,500. At that limit, these courts can easily adjudicate many claim, including minor automobile accidents. Although originally set up for pro se (unrepresented clients), many lawyers, including our firm, use it to resolve cases. The benefits of Magistrate’s Court is that your case will be reached quickly, usually only a few months. And, with no discovery (interrogatories, requests to produce, depositions), you can end your matter with relatively little costs. You can still request a jury trial, and insurance companies will respond once you actually file a lawsuit.
At Reeves, Aiken & Hightower, LLP, our attorneys are seasoned trial lawyers with over 70 years combined experience. Whether it is criminal or civil, our litigators are regularly in Court fighting for our clients. Two of our firm’s partners, Art Aiken and Robert Reeves, are inducted lifetime members of the Million Dollar Advocates Forum. Mr. Reeves has also been named one of the Top 100 lawyers for South Carolina in 2012 by the National Trial Lawyers Organization. Our attorneys include a former SC prosecutor, a former public defender, a former NC District Attorney intern, a former Registered Nurse (RN), and former insurance defense attorneys. We would like an opportunity to personally review your case. Compare our attorneys’ credentials to any other law firm. Then call us today at 877-374-5999 for a private consultation. www.rjrlaw.com
THE STATE OF SOUTH CAROLINA
In The Supreme Court
Ronnie Judy, Appellant,
v.
Phillip Martin and Dorchester County Sheriff Ray Nash, Defendants,
of whom Phillip Martin is the Respondent.
Appeal from Dorchester County
Patrick R. Watts, Circuit Court Judge
Opinion No. 26604
Submitted October 22, 2008 – Filed February 23, 2009
AFFIRMED
Glenn Walters Sr. and R. Bentz Kirby, both of Orangeburg, for Appellant.
Phillip Martin, of Marion, pro se Respondent.
CHIEF JUSTICE TOAL: In this case, Appellant Ronnie Judy filed a declaratory judgment action seeking to declare an underlying magistrate’s judgment void ab initio for lack of subject matter jurisdiction. The master-in-equity found in favor of Respondent Phillip Martin. On appeal, Appellant claims that the magistrate lacked jurisdiction to render the underlying judgment, and that the master erred by assuming facts not in evidence, finding that Appellant was required to request removal to the court of common pleas, and finding that Respondent would suffer prejudice if the magistrate’s judgment was vacated.
Factual/Procedural Background
On May 8, 2000, Respondent filed suit in magistrate’s court against Appellant, seeking $2,500 in damages. Appellant filed an Answer and Counterclaim in the amount of $6,500. At the time, the jurisdictional limit in magistrate’s court was $5,000.[1] The magistrate issued a trial notice for September 28, 2000. Appellant claims he spoke with the magistrate on September 25, 2000, and that the magistrate told him the case was out of his jurisdiction and would be transferred to the circuit court. Appellant failed to appear at trial and the case was tried in his absence. The magistrate rendered a verdict for Respondent in the amount of $2,555. Appellant appealed to the circuit court on November 6, 2000. The magistrate’s return acknowledged the conversation with Appellant, but indicates that the magistrate told Appellant only that a claim for over $5,000 would be out of his jurisdiction but said nothing about transferring the case to circuit court. The circuit court affirmed the magistrate’s judgment. Appellant did not seek reconsideration from the circuit court or file an appeal.
Shortly after the final judgment, the sheriff issued an execution, which was returned nulla bona. In 2004, the probate court issued an order placing certain real property in Appellant’s name, and Respondent had a Notice of Levy issued on the property. Appellant thereby filed this action for declaratory judgment with the master, who determined that Appellant was not entitled to relief on the grounds that Appellant: (1) failed to seek removal of the case from magistrate’s court; (2) failed to appear in court to press his case for removal; (3) relied upon a verbal ex parte request by telephone for confirmation that the case would be transferred to circuit court; (4) failed to file a motion for reconsideration of the circuit court’s decision to uphold the magistrate’s judgment; (5) failed to appeal to the court of appeals; and (6) abandoned his defense of lack of subject matter jurisdiction until nearly four years later. Appellant appealed the master’s order, and this Court certified the case pursuant to Rule 204(b), SCACR. Appellant presents the following issues for review:
| Did the trial court err in failing to address the issue of subject matter jurisdiction and whether the judgment was void ab initio? |
| Did the trial court err by assuming facts not in evidence and upholding the magistrate’s order based upon what he assumed the trial judge would have ruled? |
| Did the trial court err by ruling that Appellant had to take an affirmative act to attempt to remove his case to Circuit Court? |
| Did the trial court commit error by ruling the Respondent would face prejudice relating to having to make complicated legal arguments, and ignoring the proper relief and the relief sought by the Appellant? |
Standard of Review
Declaratory judgment actions are neither legal nor equitable and, therefore, the standard of review depends on the nature of the underlying issues. Doe v. South Carolina Medical Malpractice Liability Joint Underwriting, 347 S.C. 642, 645, 557 S.E.2d 670, 672 (2001). An action for declaratory judgment that a magistrate’s judgment is void for lack of subject matter jurisdiction is an action at law. Therefore, the master’s findings of fact will not be disturbed on appeal unless found to be without evidence which reasonably supports them. Harkins v. Greenville County, 340 S.C. 606, 621, 533 S.E.2d 886, 893 (2000).
Law/Analysis
In the first question presented for our review, Appellant alleges that the master-in-equity erred in refusing to declare the magistrate’s judgment void ab initio for lack of subject matter jurisdiction. We disagree, and hold that Appellant may not seek relief from the prior unappealed order of the circuit court because the order has become the law of the case.
Under the law-of-the-case doctrine, a party is precluded from relitigating, after an appeal, matters that were either not raised on appeal, but should have been, or raised on appeal, but expressly rejected by the appellate court. C.J.S. Appeal & Error § 991 (2008); see also Bakala v. Bakala, 352 S.C. 612, 576 S.E.2d 156 (2003) (holding that a family court judge could not overrule the prior unappealed order of another family court judge because it had become law of the case); In re Morrison, 321 S.C. 370 n. 2, 468 S.E.2d 651 n. 2 (1996) (noting that an unappealed ruling becomes the law of the case and precludes further consideration of the issue on appeal); Cooper Tire & Rubber Co. v. Perry et al, 261 S.C. 538, 201 S.E.2d 245 (1973) (holding that where a ruling on a demurrer to complaint is not appealed from, it becomes the law of the case); Watkins v. Hodge, 232 S.C. 245, __, 101 S.E.2d 657, 658 (1958) (refusing to consider jurisdictional matter of underlying case where issue had been ruled upon and not challenged on appeal).
In this declaratory judgment action, Appellant seeks to reopen the question of whether the magistrate had subject matter jurisdiction to hear the merits of the underlying dispute. However, Appellant raised this issue and argued it before the circuit court on appeal from the magistrate’s judgment. The circuit court denied Appellant’s appeal and affirmed the magistrate’s judgment. Appellant did not file a motion for reconsideration, an appeal with the court of appeals, or a motion to set aside the judgment. The circuit court’s unchallenged disposition on the magistrate’s subject matter jurisdiction therefore became the law of the case, and this Court declines to reopen that issue in this subsequent action. [2]
Conclusion
For the reasons stated herein, we affirm the ruling of the master-in-equity.
WALLER, BEATTY and KITTREDGE, JJ., concur. PLEICONES, J. concurring in result only.
[1] The current jurisdictional limit of $7,500 took effect on January 1, 2001. S.C. Code Ann. § 22-3-10 (2008).
[2] The remaining three questions presented for our review each involve the master’s findings with regard to the magistrate’s jurisdiction, and are similarly foreclosed by the law-of-the-case doctrine.
Apr 3, 2012 | Brain Injury/Head Trauma, Car Accidents, Personal Injury, Uncategorized, Wrongful Death
Although this is a SC Supreme Court case,it amply demonstrates the lengths multinational corporations will go to fight serious injury and wrongful death claims regardless of your jurisdiction. In this instance, a defective tire lost its tread and caused a family to lose control of their vehicle and rollover. Two were killed, and two were seriously injured. If you have any doubts about how difficult serious injury claims are to litigate, just count the number of lawyers involved on the defense side.
At Reeves, Aiken & Hightower, LLP, all of our attorneys are seasoned trial lawyers with over 70 years combined experience. Whether it is criminal or civil, our litigators are regularly in Court fighting for our clients. Two of our firm’s partners, Art Aiken and Robert Reeves, are inducted lifetime members of the Million Dollar Advocates Forum. Mr. Reeves has also been named one of the Top 100 lawyers for South Carolina in 2012 by the National Trial Lawyers Organization. Our attorneys include a former SC prosecutor, a former public defender, a former NC District Attorney intern, a former Registered Nurse (RN), and former insurance defense attorneys. As a result of their varied backgrounds, they understand the potential criminal, insurance, and medical aspects of complex injury cases. We would welcome an opportunity to sit down and personally review your case. Compare our attorneys’ credentials to any other law firm. Then call us today for a private consultation. www.rjrlaw.com
THE STATE OF SOUTH CAROLINA
In The Supreme Court
Russell Laffitte, as Personal Representative of the Estate of Angela Lynn Plyler, Respondent,
v.
Bridgestone Corporation, Bridgestone/Firestone North American Tire, LLC, Ford Motor Company, Bubba Windham and Chuck Horton d/b/a Vintage Motors, Defendants,
of whom Bridgestone Corporation is the Petitioner.
Russell Laffitte, as Personal Representative of the Estate of Justin Plyler, Respondent,
v.
Bridgestone Corporation, Bridgestone/Firestone North American Tire, LLC, Ford Motor Company, Bubba Windham and Chuck Horton d/b/a Vintage Motors, Defendants,
of whom Bridgestone Corporation is the Petitioner.
Alania Plyler, a minor by and through her Conservator, Russell Laffitte, Respondent,
v.
Bridgestone Corporation, Bridgestone/Firestone North American Tire, LLC, Ford Motor Company, Bubba Windham and Chuck Horton d/b/a Vintage Motors, Defendants,
of whom Bridgestone Corporation is the Petitioner.
Hannah Plyler, a minor by and through her Conservator, Russell Laffitte, Respondent,
v.
Bridgestone Corporation, Bridgestone/Firestone North American Tire, LLC, Ford Motor Company, Bubba Windham and Chuck Horton d/b/a Vintage Motors, Defendants,
of whom Bridgestone Corporation is the Petitioner.
ORIGINAL JURISDICTION
Appeal from Hampton County
Carmen T. Mullen, Circuit Court Judge
Opinion No. 26606
Re-heard September 17, 2008 – Filed March 2, 2009
REVERSED
M. Dawes Cooke, Jr., Todd M. Musheff, and John W. Fletcher, all of Barnwell Whaley Patterson & Helms, of Charleston, and Wallace K. Lightsey, of Wyche Burgess Freeman & Parham, of Greenville, for Petitioner.
F. Arnold Beacham, Jr., of Young & Sullivan, of Lexington, and John E. Parker, Ronnie L. Crosby, and R. Alexander Murdaugh, all of Peters, Murdaugh, Parker, Eltzroth & Detrick, of Hampton, for Respondents.
Elbert S. Dorn and Nicholas W. Gladd, both of Turner Padget Graham & Laney, of Columbia, for Defendant Ford Motor Company, Erin D. Dean, of Tupper Grimsley & Dean, of Beaufort, for Defendant Bubba Windham et al., and Henry B. Smythe, Jr., David B. McCormack, and David S. Cox, all of Buist Moore Smythe McGee, of Charleston, for Defendant Bridgestone/Firestone North American Tire.
E. Warren Moise, of Grimball & Cabaniss, of Charleston, and Debora B. Alsup, of Thompson & Knight, of Austin, Texas, for Amicus Curiae Rubber Manufacturers Association.
John G. Creech, James H. Fowles III, and C. Victor Pyle III, all of Ogletree Deakins Nash Smoak & Stewart, of Columbia, for Amicus Curiae South Carolina Chamber of Commerce.
C. Mitchell Brown, William C. Wood, Jr., A. Mattison Bogan, all of Nelson Mullins Riley & Scarborough, of Columbia, for Amicus Curiae Product Liability Advisory Council, Inc.
CHIEF JUSTICE TOAL: In this product liability case, we granted a petition for a writ of certiorari in our original jurisdiction to review the trial court’s discovery order compelling Petitioner Bridgestone Corporation (Bridgestone) to turn over its steel belt skim stock formula, classified as a trade secret, to Respondent Russell Laffitte. For the reasons detailed below, we find that Respondent has not shown that knowledge of Bridgestone’s trade secret is necessary in order for Respondent to litigate this product liability action. Consequently, the trial court’s order compelling disclosure by Bridgestone of the skim stock formula is reversed.
FACTUAL/PROCEDURAL BACKGROUND
On July 16, 2005, Angela Plyler was driving her 1999 Ford Explorer along Interstate 95 in Hampton County with her three children as passengers. The tread from the left rear tire of the Explorer separated from the tire, allegedly causing the vehicle to overturn and collide with a tree. The single‑car accident killed Angela and her teenage son Justin, and seriously injured her daughters Alania and Hannah.
Respondent, acting as personal representative for the decedents and as conservator for the minor daughters, filed four separate lawsuits against several defendants, including Bridgestone, the manufacturer of the vehicle’s left rear tire. The complaints allege negligence, warranty, and strict liability claims against Bridgestone. As to the negligence allegations, Respondent maintains Bridgestone used an inadequate tire design and failed to use proper manufacturing techniques resulting in a defective tire. In addition, Respondent specifically alleges Bridgestone failed to use sufficient antidegradants to protect the integrity of the tire.
The four cases were consolidated for discovery purposes. Respondent sought to obtain information on the design and manufacturing processes for the subject tire, which had been manufactured in 1996 at Bridgestone’s Hofu Plant in Japan.[1] Bridgestone objected to Respondent’s requests for its steel belt skim stock formula[2] and other related information on the basis that the skim stock formula was a trade secret of Bridgestone.[3] According to Bridgestone, Respondent can prove his claims without discovery of the skim stock formula because he has access to the actual failed tire and can therefore conduct appropriate testing on the tire itself. Respondent counters that without the information related to the skim stock ingredients and manufacturing processes, including any plant-specific deviations from the manufacturing formula, the defect claims cannot be proven.
The trial court held a hearing in January 2007 on Respondent’s motion to compel and Bridgestone’s cross-motion for a protective order. The trial court informed counsel in February 2007 that it would be granting the motion to compel. Prior to entry of the final order, however, the trial court granted Bridgestone’s request that it be allowed to depose Respondent’s experts solely on the issue of Respondent’s need for the skim stock formula. Four experts provided affidavit or deposition testimony on the issue of Respondent’s need for the skim stock formula.
Bridgestone’s expert, Brian Queiser, described the various factors beyond the tire’s chemical composition which could affect the tire’s durability.[4] According to Queiser’s affidavit:
A tire is a highly engineered, complex product, which is the result of a blend of chemistry and engineering. A steel belted radial passenger tire typically contains twenty or more components and more than a dozen different rubber compounds. . . .
. . . Furthermore, the individual components of a steel belted radial tire are designed to work in conjunction with the other components of that tire. As a result, the forces exerted on the tire during its operation are subject to the combined effects of many parameters, including tire size; inflation pressure; component materials, dimensions, and gauge; as well as vehicle characteristics. Therefore, it is not accurate to gauge the performance of any particular tire by focusing on one isolated component or compound…
. . . Given the inherent design of any steel belted radial tire, . . . the areas of the steel belt edges are generally the areas of highest stress/strain. As a result, any steel belted radial tire can sustain a tread/belt separation due to numerous service conditions such as overloading, underinflation, punctures, road hazards, impact damage and so forth.
Queiser further explained that rubber compound formulas cannot be reverse engineered from the finished product because once a tire is cured, the chemical composition changes. Queiser asserted that because the physical properties of the subject tire itself could be inspected and tested, “[a]ccess to the formulas is unnecessary to determine whether the tire was properly designed and manufactured.” As to the trade secret nature of the skim stock formula, Queiser described the formula as “one of Bridgestone/Firestone’s most valuable assets and most closely guarded secrets.”
At his deposition, when asked why the skim stock formula was unnecessary in the instant litigation, Queiser responded as follows:
Well, I guess in this case, as I understand it, all that you would need is what you essentially have. You have the tire, you have the ability to test the tire, test its physical properties. It has been my experience that that is all you need to evaluate the condition of the tire as it relates to its performance. It is my experience that the ability to have the chemical information, the recipe, really doesn’t answer those questions for you. The formula or recipe doesn’t give you the performance, frankly, which is the most important element.
Queiser elaborated that when the federal government investigated certain tires manufactured by Bridgestone/Firestone, Inc., which were similar to tires recalled by Firestone in August 2000, “[f]ormula was not part of the report . . . , it was all about the performance, the design of the tire from a mechanical and structural perspective and the performance of that tire. It was not about the chemical constituents or the recipe.” When pressed by Respondent’s counsel as to whether the skim compound or manufacturing process was ever considered as part of the federal investigation, Queiser answered as follows:
No, I would not say “never considered.” But certainly it was something that was clearly early set aside as a probable cause. We had so many tires produced from so many different plants with that same formula, hundreds of which . . . had absolutely no claim or lawsuit associated with them on that same compound. That formula or compound, per se, no, it wasn’t a factor early on.
Queiser also described how rubber changes over time from exposure to oxygen and ozone, noting that “[t]he environment, the use of the tire or the rubber, how the rubber is used, [and] other external influences naturally are a part of its properties over time.” Queiser acknowledged that oxidation in general would cause changes in the makeup of a rubber compound, but qualified his statement saying that chemical changes in rubber compounds, in his opinion, were still not fully understood by modern science. Queiser also acknowledged that antidegradants are added to the skim stock compound to combat the effects of oxygen on a tire and that there were “other inherent qualities” of other ingredients in the tire which “may also lend themselves to some resistance to change.” Queiser nonetheless adhered to his view that by physically testing the subject tire – perhaps by viewing it at a microscopic level – would be the appropriate way to assess whether there is a design defect.
Finally, Queiser testified that the skim stock compound chemically interfaces with the brass which covers the steel belts, and that this “is one of the essences of the trade secret nature of the chemical composition and the production of that compound.” If a competitor were to have knowledge on this aspect of tire design, Queiser stated that the competitor would essentially acquire “a company’s decades’ worth of experience” which would give it “a huge competitive advantage.”
Respondent presented three experts to opine on the need for the skim stock formula in support of the motion to compel. Robert C. Ochs stated in an affidavit that he had evaluated the subject tire to determine why the tire failed.[5] Ochs averred as follows:
My initial evaluation of the tire reveals that the tire failed prematurely as a result of a defect in the tire. At this time I cannot state whether the defect is in the manufacture or design of the tire.
[Respondent has] requested that I work together with James E. Duddey, Ph.D. and Richard J. Smythe, Ph.D. to determine if the failure was the result of a manufacturing defect or a design defect. In order to perform the specific work requested by [Respondent] it will be necessary to compare the failed tire with its initial physical properties as designed by Bridgestone.
Because this failure involves a separation of the tread belt, it will be necessary to examine the skim compound formula to aid in determining the true nature of the defect. Once the skim compound used to manufacture the subject tire is analyzed, both for its intended physical properties and as compared to the central compound formula, I will then be able to render opinions on the true nature of the defect.
Respondent’s second expert, Dr. James Duddey inspected the failed tire and made the following observations in his affidavit:[6]
Examination of the tire demonstrates a premature failure caused by the separation of the steel belts. The tire shows evidence of surface cracking that could be caused by fatigue or premature rubber aging. The tire tread piece examined demonstrates a degree of hardness in the skim stock that may be related to either the initial physical properties of the rubber compound or premature aging.
Additionally, because Respondent’s counsel specifically requested that Duddey review the skim stock formula to determine whether a design defect existed in the subject tire, and whether changes made to the antidegradant package used in the skim stock formula affected the aging mechanical properties of the tire, Duddey stated that he needed “access to documents showing the initial physical properties of the rubber compound to determine whether there exists a plant specific manufacturing issue or an overall design issue.”
At his deposition, Duddey acknowledged that a number of factors, such as overload and underinflation, could cause belt separation in tires that were properly designed. Duddey also explained that there were multiple possible causes for the increased hardness found in the subject tire, including oxidative aging and heat exposure.
As to needing the skim stock formula in order to determine why the subject tire exhibited hardness, Duddey testified that “as a starter you need to know what the properties were as the tire was designed and manufactured and then you need to try to make some judgment as to if it’s significantly different than when it was manufactured, how it got to that point.” Duddey admitted, however, that both the hardness and the cracking found in the subject tire did not necessarily relate back to the formulation of the compound, but could also have been associated with how the tire had been used. Duddey explained that if Bridgestone provided the skim stock formula for the subject tire, ultimately all he could do was make a comparison as to “what is the general practice that is out there in the supplier literature and the technical literature.”
Respondent’s third expert, Dr. Richard Smythe, was hired to analyze certain materials within the tire deemed important by experts Ochs or Duddey.[7] Smythe indicated that he would design an analytical protocol in order to evaluate certain aspects of the skim stock formula and that if Ochs and Duddey determined that the subject tire did not exhibit the physical properties intended by its design, he would be able to assist in a root-cause analysis of why that tire failed. Smythe asserted that it was “absolutely necessary” that he know all of the ingredients in the rubber compound in order to render his expert opinion in the matter.
After considering the experts’ depositions and the parties’ supplemental briefs, the trial court issued an order compelling discovery and issued a restrictive protective order.[8] Specifically, the trial court found that Respondent had met the prerequisites for discovery of trade secret information under either Rule 26(c), SCRCP, or the South Carolina Trade Secrets Act, S .C. Code Ann. § 39-8-10 et seq. (Supp. 2007) (hereinafter “Trade Secrets Act”). The trial court concluded that Respondent’s experts had established the need for the skim stock formula, stating as follows:
[Respondent’s] claim [is] that the failed tire experienced a steel belt separation. It further appears it is the skim stock compound that is designed to provide adhesion between the steel belts and between surrounding components. As such, the composition of the ingredients, both actual and intended, and the method by which the rubber compound was made is relevant to the inquiry into why the subject tire failed. While it may be possible, it appears unlikely that [Respondent] could seriously pursue a design defect theory without access to the materials and methods used to manufacture the portion of the tire claimed to be responsible for the failure.
Bridgestone thereafter petitioned for certiorari review of the trial court’s order in this Court’s original jurisdiction. The Court granted the petition and Bridgestone raises the following issues for review:
| I. |
What is the appropriate standard for the discovery of trade secret information in a product liability action? |
| II. |
Did the trial court err in finding that Respondent established the requisite need for Bridgestone’s trade secret skim stock formula? |
STANDARD OF REVIEW
Ordinarily, an order compelling discovery is not directly appealable. Lowndes Products, Inc. v. Brower, 262 S.C. 431, 205 S.E.2d 184 (1974). Nevertheless, a writ of certiorari may be issued when exceptional circumstances exist. See In re Breast Implant Product Liability Litigation, 331 S.C. 540, 503 S.E.2d 445 (1998). The instant case presents such exceptional circumstances as it involves a novel question of law in a matter that has been the subject of numerous claims in state and federal courts. A decision by this Court at this time best serves the interests of judicial economy by eliminating the numerous inevitable appeals raising this novel issue of significant public interest. Id. n.2.
On certiorari, review by the Court is confined to the correction of errors of law. Berry v. Spigner, 226 S.C. 183, 84 S.E.2d 381 (1954).
LAW/ANALYSIS
We begin our analysis by putting the legal nature of a trade secret into context. As aptly described in a recent opinion by the Indiana Supreme Court:
Trade secrets are unique creatures of the law, not property in the ordinary sense, but historically receiving protection as such. Unlike other assets, the value of a trade secret hinges on its secrecy. As more people or organizations learn the secret, the value quickly diminishes. For this reason, owners or inventors go to great lengths to protect their trade secrets from dissemination.
The value of trade secret protection to a healthy economy has been widely accepted for some time. Over the last two hundred years, the law has developed mechanisms for accomplishing this end.
Bridgestone Am. Holding, Inc. v. Mayberry, 878 N.E.2d 189, 192 (Ind. 2007) (footnote omitted).
However, it is also true that “trade secrets may be valuable during the course of litigation not involving misappropriation claims, and there are moments when justice requires disclosure.” Id. at 193. In spite of this acknowledgement of the potential value of trade secrets in litigation, the Mayberry court also cautioned that “courts must proceed with care when supervising the discovery of trade secrets, lest the judiciary be used to achieve misappropriation or mere leverage.” Id.
I. Standard for Discovery of Trade Secrets
The question of what standard governs the discovery of trade secret information is a novel issue in South Carolina. Under the Trade Secrets Act, a person “aggrieved by a misappropriation, wrongful disclosure, or wrongful use of his trade secrets may bring a civil action to recover damages incurred as a result of the wrongful acts.” S.C. Code Ann. § 39-8-30(C). The Trade Secrets Act addresses discovery matters and provides in pertinent part as follows:
(A) In an action under this chapter, a court shall preserve the secrecy of an alleged trade secret by reasonable means, which may include granting protective orders in connection with discovery proceedings, holding hearings in-camera, sealing the records of the action, and ordering any person involved in the litigation not to disclose an alleged trade secret without prior court approval.
(B) In any civil action where discovery is sought of information designated by its holder as a trade secret, before ordering discovery a court shall first determine whether there is a substantial need by the party seeking discovery for the information.
“Substantial need” as used in this section means:
(1) the allegations in the initial pleading setting forth the factual predicate for or against liability have been plead with particularity;
(2) the information sought is directly relevant to the allegations plead with particularity in the initial pleading;
(3) the information is such that the proponent of the discovery will be substantially prejudiced if not permitted access to the information; and
(4) a good faith basis exists for the belief that testimony based on or evidence deriving from the trade secret information will be admissible at trial.
S.C. Code Ann. § 39-8-60. Although Respondent suggests that the Trade Secrets Act only applies to those actions alleging trade secret misappropriation,[9] we find that the plain language of § 39-8-60(B) clearly indicates that trade secrets may be protected during discovery not only in misappropriation cases, but in “any civil action” where trade secrets are sought during discovery. See Key Corp. Capital, Inc. v. County of Beaufort, 373 S.C. 55, 59, 644 S.E.2d 675, 677 (2007) (noting that where a statute’s language is plain, unambiguous, and conveys a clear meaning, the court has no right to impose another meaning).
This is not to say, however, that the “substantial need” language of the Trade Secrets Act is the sole relevant inquiry in determining the standard governing trade secret information. As Respondent points out, the South Carolina Rules of Civil Procedure also provide for the protection of trade secret information when such information is sought during discovery. Specifically, Rule 26(c), SCRCP, allows for protective orders under certain circumstances as follows:
Upon motion by a party or by the person from whom discovery is sought, and for good cause shown, the court in which the action is pending . . . may make any order which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden by expense, including one or more of the following: . . . (7) that a trade secret or other confidential research, development, or commercial information not be disclosed or be disclosed only in a designated way.
In determining whether trade secret information is subject to a protective order under Rule 26(c)(7), federal and state courts typically apply a balancing test that incorporates a “relevant and necessary” standard for the party seeking to discover the trade secret information.[10] See generally 8 Charles Alan Wright, Arthur R. Miller & Richard L. Marcus, Federal Practice and Procedure § 2043 (2d ed. 1994) (hereinafter “Wright & Miller”); James J. Watson, Annotation, Discovery of Trade Secret in State Court Action, 75 A.L.R.4th 1009, 1028-30 (1990). The test is a three-part inquiry:
| 1. |
The party opposing discovery must show that the information sought is a trade secret and that disclosure would be harmful. |
| 2. |
If trade secret status is established, the burden shifts to the party seeking discovery to show that the information is relevant and necessary to bring the matter to trial. |
| 3. |
If both parties satisfy their burden, the court must weigh the potential harm of disclosure against the need for the information in reaching a decision. |
See also Mayberry, 878 N.E.2d at 193; Coca-Cola Bottling Co. of Shreveport, Inc. v. Coca-Cola Co., 107 F.R.D. 288, 292-93 (D. Del. 1985).[11]
We disagree with Respondent’s argument that our determination that the Trade Secrets Act applies to any civil action impermissibly supplants a rule of civil procedure. See Baggerly v. CSX Transp., Inc., 370 S.C. 362, 635 S.E.2d 97 (2006) (rejecting an interpretation of a statute which would have contravened a rule of evidence). Unlike the statute at issue in Baggerly, § 39-8-60 does not improperly limit the operation of Rule 26, but rather is consistent with Rule 26 in that both provide for reasonable restrictions on the discovery of trade secrets. The Trade Secrets Act therefore does not supplant, but rather complements, Rule 26(c), SCRCP. Cf. Mayberry, 878 N.E.2d at 194 (finding that the application of Rule 26 to trade secrets “should be informed by Indiana’s enactment of the Uniform Trade Secrets Act”).
To this end, we hold that the balancing test associated with the discovery of trade secret information under Rule 26(c), SCRCP, governs the discovery of trade secret information in this matter. Regarding the requirement that the trade secret information must be “relevant,” we hold that the information must be relevant not only to the general subject matter of the litigation, but also relevant specifically to the issues involved in the litigation. See Duplan Corp. v. Deering Milliken, Inc., 397 F.Supp. 1146, 1185 (D.S.C. 1974). For the trade secret information to be deemed “necessary,” we hold that the party seeking the information “cannot merely assert unfairness but must demonstrate with specificity exactly how the lack of the information will impair the presentation of the case on the merits to the point that an unjust result is a real, rather than a merely possible, threat.” In re Bridgestone/Firestone, Inc., 106 S.W.3d 730, 733 (Tex. 2003); accord Bridgestone/Firestone, Inc. v. Superior Court, 9 Cal.Rptr.2d 709, 713 (Cal. Ct. App. 1992) (holding that a party seeking discovery must make a “particularized showing” that “the information sought is essential to a fair resolution of the lawsuit”). “Implicit in this is the notion that suitable substitutes must be completely lacking.” Mayberry, 878 N.E.2d at 196. In other words, the trial court must evaluate whether there are reasonable alternatives available to the party seeking the discovery of the information, and ultimately, the trial court must require the discovery of a trade secret only when “the issues cannot be fairly adjudicated unless the information is available.” Wright & Miller, § 2043.
From here, we turn to an analysis of the second issue on appeal in order to determine whether Respondent meets the “relevant and necessary” standard of proof for discovery of a trade secret.
II. Application of the standard to Respondent’s request for Bridgestone’s skim stock formula
Bridgestone argues that the trial court erred in finding that discovery of the skim stock formula was necessary to Respondent’s case. Specifically, Bridgestone contends that: (1) the expert testimony does not establish that if the experts were provided the skim stock formula and related manufacturing information, they would necessarily be able to opine on a defect; and (2) other methods, such as testing the tire itself, are available to Respondent. We agree.
In our view, Respondent’s experts’ reasons for opining that the formula was necessary for their analyses do not rise to the level of specificity required for discovery of trade secrets. For example, expert Smythe did not elaborate on why it was “absolutely necessary” that he know the skim stock formula in order to render his expert opinion in the matter. Furthermore, although expert Ochs concluded in his affidavit that it was necessary to compare the failed tire with its initial physical properties because the tire’s failure involved a separation of the tread belt, Ochs never explained how the occurrence of a tread belt separation should result in the automatic conclusion that the belt separation was related to the initial physical properties of the tire requiring disclosure of the skim stock formula. Given Queiser’s and Duddey’s testimony on the many potential causes of tread belt separation related to the usage of the tire rather than its initial physical properties, we find that Ochs’s testimony lacks the precision required for Respondent to show that disclosure of Bridgestone’s skim stock formula is necessary to this case. See also Bridgestone/Firestone, Inc. v. Superior Court, 9 Cal.Rptr.2d at 716 (finding that the tire expert did not “describe with any precision how or why the formulas were a predicate to his ability to reach conclusions in the case”).
Expert Duddey’s reasoning for acquiring the formula was similarly vague. In his affidavit, Duddey initially attributed the apparent surface cracking on the subject tire to either “fatigue or premature rubber aging,” and the degree of hardness in the skim stock to “either the initial physical properties of the rubber compound or premature aging.” When later asked at deposition to elaborate on the need for the skim stock formula, Duddey responded that “as a starter you need to know what the properties were as the tire was designed and manufactured and then you need to try to make some judgment as to if it’s significantly different than when it was manufactured, how it got to that point.” Duddey provided no indication in his response at deposition that he had examined and subsequently discarded the alternative theories propounded in his affidavit for the tire’s failure. For this reason, we find that this testimony fails to adequately articulate how disclosure of the skim stock formula is critical to the analysis in this case.
We find also find no evidence that the skim stock formula is essential to a defect inquiry. Bridgestone’s expert Queiser clearly indicated that because a tire is a complex object made up of many compounds, it would be inaccurate to gauge the performance of a particular tire by focusing on one isolated component or compound. Queiser also noted how properties of the skim rubber compounds change as the tire ages. Respondent’s experts, however, focused solely on the tire’s initial properties without addressing Queiser’s assertions regarding the interaction of compounds in the tire during the curing process and throughout the tire’s lifetime. In this way, we find Respondent’s experts failed to provide a sufficiently complete argument as to why the skim stock formula was necessary to their analyses of this case.
Furthermore, the experts’ testimony provides no detailed indication as to how the case is incapable of being fairly adjudicated without the trade secret information. See In re Bridgestone/Firestone, Inc., 106 S.W.3d at 733 (holding that the party seeking trade secret information cannot simply claim unfairness but must show “with specificity how the lack of the information will impair the presentation of the case on the merits to the point that an unjust result is a real, rather than a merely possible, threat”). While we recognize the logic in Respondent’s theory that in order to prove a tire design or manufacturing defect, it would be useful to have knowledge of the original recipe and whatever manufacturing deviations were made from that recipe, we reiterate that the standard for discovery of trade secret information is “necessary,” not “useful.” See Bridgestone/Firestone, Inc. v. Superior Court, 9 Cal.Rptr.2d at 715 (finding that “it is not enough that a trade secret might be useful” to the party seeking discovery).
Additionally, we find that the trial court failed to analyze the availability of reasonable alternatives to the discovery of the trade secret. Specifically, a chemical analysis necessitating the discovery of Bridgestone’s skim stock formula is not the sole, or even the best, way to test for defects. We find an October 2001 report issued by the National Highway Traffic Safety Administration (NHTSA) particularly instructive to the Court in this regard.[12] The stated purpose of the federal investigation documented in this report was to determine whether Firestone’s August 2000 recall of Wilderness AT tires was adequate in scope. The report focused on non-recalled tires that were manufactured primarily as original equipment for Ford Explorers, yet were similar to the tires recalled by Firestone in 2000. The study used peer tires, mostly Goodyear Wrangler tires, in order to compare performance results to the Wilderness AT tires being evaluated.
The methods of the federal recall investigation, employed on both Firestone tires and the peer tires, included “thorough analyses of available data regarding the performance of tires in the field; shearography analysis to evaluate crack initiation and growth patterns and their severity in tires obtained from areas of the country where most of the failures have occurred; and observations, physical measurements, and chemical analyses.” NHTSA Report at iii. Additionally, the NHTSA conducted belt peel adhesion testing, a physical test on one-inch wide samples of tire tread which are essentially pulled by a tensile test machine “to measure the force required to ‘peel’ the two belts apart.” Id. The report explained the purpose of this test as follows:
[T]he properties of the belt wedge and skim rubber compounds change as the tire ages. These changes reduce the compounds’ resistance to fatigue crack growth and catastrophic failure. One measure of the degradation of the belt rubber is the peel adhesion test. This test is most directly related to the belt rubber’s resistance to a final, catastrophic belt-leaving-belt failure.
Id. The report specifically noted there was “no evidence of a belt wire-to-rubber adhesion issue.” Id. at 23 n.38.
The NHTSA concluded that a safety-related defect existed in Firestone Wilderness AT P235/75R15 and P255/75R16 tires manufactured prior to May 1998 at specified manufacturing facilities. One of the primary findings was that the design of the shoulder pocket of the tires could “cause high stresses at the belt edge and lead to a narrowing of the wedge gauge at the pocket,” indicated by “a series of weak spots around the tire’s circumference, leading to the initiation and growth of cracks” in the tires. Id. at 30.
We find it significant that the NHTSA, without focusing on the skim stock formula, conducted physical testing of the tires and ultimately arrived at a scientifically-supported conclusion that there was a design defect which caused belt separation. This reliance on a structural analysis to determine defect, rather than a chemical analysis, provides tangible proof that other adequate means of testing for defects are available to Respondent and that therefore, Respondent’s case will not be substantially impaired if he is denied access to the trade secret information. We note that other jurisdictions have similarly recognized that physically testing the tire itself for defects, including testing at a molecular level if necessary, may be a suitable substitute for testing based on the skim stock formula. See Mayberry, 878 N.E.2d at 196 (noting that testimony revealed that an inspection of the failed tire appears to be “more than an adequate substitute for examining the skim stock formula”); In re Bridgestone/Firestone, Inc., 106 S.W.3d at 733 (finding that because a tire’s physical properties can be tested without knowing the recipe for the skim stock compound, tests on a finished tire are “more probative of defect than its skim stock formula would be”).
Further, the discovery already available to Respondent for analysis of the alleged defect includes information about development, design review, and testing of tires manufactured with the same specifications as the tire in this case. Bridgestone has also produced or agreed to produce analysis reports of inner liner problems with similar tires, reports from cut tire analysis done at the Hofu plant, and records and depositions from similar cases involving Bridgestone tires. The variety of information these documents encompass provides Respondent with “suitable substitutes” for analysis of the skim stock formula itself. Mayberry, 878 N.E.2d at 196. Thus, particularly in light of the discovery obtainable in this case, Respondent has not shown that the case is incapable of being fairly adjudicated without the trade secret information.
For these reasons, we hold that under the proper standard governing the discovery of trade secrets, knowledge of Bridgestone’s skim stock formula is not “necessary” in order for Respondent to litigate the instant product liability action.[13] Accordingly, we hold that the trial court erred in finding that Respondent was entitled to discovery of Bridgestone’s trade secret information.
We note that Bridgestone should not use our holding in this matter at trial to suggest weaknesses in Respondent’s case due to his experts’ ignorance about the formula. See In re Bridgestone/Firestone, Inc., 106 S.W.3d at 734 (recognizing that it would be unfair for the manufacturer to argue the plaintiff’s case was impaired due to lack of evidence that the manufacturer withheld);Bridgestone/Firestone, Inc. v. Superior Court, 9 Cal.Rptr.2d at 716 n.8 (noting that it would be unfair for the manufacturer to challenge an expert at trial about his knowledge of the skim stock formula). Indeed, if at any time during the litigation, Respondent can satisfy his burden of showing necessity, this matter could be revisited. See In re Bridgestone/Firestone, Inc., 106 S.W.3d at 734 (finding that while the mere possibility of unfairness is not enough to warrant disclosure of the information, this issue can be addressed should it materialize).
CONCLUSION
For the foregoing reasons, we hold that Respondent failed meet the standard for the discovery of Bridgestone’s trade secret information, and therefore, we reverse the decision of the trial court compelling the disclosure of Bridgestone’s trade secret.
BEATTY, KITTREDGE, JJ., and Acting Justice James E. Moore, concur. PLEICONES, J., dissenting in a separate opinion.
JUSTICE PLEICONES: I respectfully dissent, and would affirm the circuit court’s order compelling petitioner to disclose the skim stock formula. Since this order is before us on a common law writ of certiorari, we may reverse the trial court’s decision only if it is affected by an error of law. Berry v. Spigner, 226 S.C. 183, 84 S.E.2d 381 (1954). We cannot consider the facts, “except to ascertain whether the order is wholly unsupported by the evidence.” Id. Since I find evidence in the record, particularly the affidavit of Dr. Duddey, which supports the circuit court’s order, I would affirm.
In my opinion, the majority reverses not because there is no evidence, nor because the circuit court committed an error of law, but because, in the majority’s view, the petitioners’ experts were more persuasive than those of respondent. For example, the majority states respondent’s experts did not address Queiser’s assertion that a tire’s performance is not dependent on its initial composition. Dr. Duddey, however, acknowledged that post-manufacturing factors could explain the tire’s failure, but also maintained that he needed the formula in order to determine whether a design defect, perhaps in the antidegradant package component of the formula, contributed to its failure. In my view, whether this was sufficiently specific is a judgment call for the trial judge.
Moreover, the majority opines that “a chemical analysis necessitating the discovery of Bridgestone’s skim stock formula is not the sole, or even the best, means to test for defect” and holds there is “no evidence that the skim stock formula is essential to a defect inquiry.” It is not respondent’s burden under either the Trade Secrets Act or Rule 26 (c) (7), SCRCP to demonstrate that knowledge of the trade secret is the “best” or “sole” way for it to proceed, nor that it is “essential,” but rather that it has a “substantial need”[14]for this “relevant and necessary”[15] information. Applying our limited scope of review on certiorari[16] to the order before us, I would hold there is evidence to support the trial judge’s findings that respondent has met his burden.
I would affirm.
[1] The subject tire is a P235/75R15 Radial ATX steel belted radial passenger tire and was designed for use as a replacement tire. At the time of the accident, the subject tire was being used as a spare and was the only Bridgestone tire on the Explorer; Michelen manufactured the other three tires.
[2] According to Bridgestone’s expert witness, steel belt skim stock is “a specifically formulated rubber compound calendered onto the steel cord to form the steel belts in a steel belted radial passenger or light truck tire,” which is “formulated to provide, among other things, adhesion between the rubber and steel cord, and between the belts and surrounding components.” The formula of a rubber compound such as the steel belt skim stock “typically contains the chemicals or ingredients used in the compound; the quantities or relative percentages of those ingredients; and the manner in which those ingredients are processed to form the compound and give it the desired physical properties after it is vulcanized, or cured.”
[3] Respondent has not disputed that the skim stock formula is a trade secret. Under South Carolina law, a trade secret is defined as information, including a formula or process, that:
(i) derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by the public or any other person who can obtain economic value from its disclosure or use, and
(ii) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
S.C. Code Ann. § 39-8-20(5)(a) (Supp. 2007).
[4] Queiser, an employee of Bridgestone/Firestone, Inc. since 1994, holds a bachelor’s degree in aeronautical and astronautical engineering as well as a master’s degree in engineering mechanics. He stated that he has “personally developed steel belted radial tires from concept through . . . production” and that his experience included analysis of tire failure.
[5] Ochs holds a bachelor’s degree and a master’s degree in mechanical engineering. Michelin employed Ochs from 1969-1994, during which time his work included analysis of failed passenger and light truck tires.
[6] Duddey holds a Ph.D. in physical organic chemistry and worked for Goodyear Tire and Rubber Company for thirty-two years.
[7] Smythe, an analytical chemist, has been exposed to at least one proprietary skim stock formula and has performed work on rubber compounds to determine why they failed. Smythe is not a tire engineer and does not claim to have expertise in tire design or manufacturing.
[8] The trial court found that a protective order could be fashioned to protect the trade secret status of the information, but “[b]ecause the parties are in a better position to narrow the issues on the terms of a protective order,” the trial court instructed the parties to collaborate on the specific terms of the protective order. There is no protective order in the record presumably because Bridgestone filed its petition for a writ of certiorari less than a month after the trial court’s order.
[9] In support of his position, Respondent asserts Griego v. Ford Motor Co., 19 F.Supp.2d 531, 533 (D.S.C. 1998), in which the federal district court held that the Trade Secrets Act does not apply to a product liability action because it “is not based on misappropriation of a trade secret or protection against such a misappropriation.” We decline to adopt the reasoning set forth inGriego and note that a federal court decision interpreting state law is not binding on this Court. Blyth v. Marcus, 335 S.C. 363, 517 S.E.2d 433 (1999).
[10] The language of Rule 26(c), SCRCP, mirrors that of federal Rule 26(c). Because there is no South Carolina precedent construing this rule, federal interpretation of Rule 26(c) is persuasive authority. See State v. Colf, 332 S.C. 313, 317, 504 S.E.2d 360, 361 (Ct. App. 1998).
[11] Likewise, in jurisdictions where trade secrets are protected by a codified evidentiary privilege, the courts apply a similar balancing test. See, e.g., In re Cont’l Gen. Tire, Inc., 979 S.W.2d 609 (Tex. 1998); Bridgestone/Firestone, Inc. v. Superior Court, 9 Cal.Rptr.2d 709 (Cal. Ct. App. 1992).
[12] See U.S. Dep’t of Trans., NHTSA, Office of Defects Investigation, Engineering Analysis Report and Initial Decision Regarding EA00-023 Firestone Wilderness AT Tires (October 2001) (hereinafter “NHTSA Report”).
[13] Contrary to the dissent’s assertion, we do not reverse the trial court’s order compelling discovery based on our view of the experts’ testimonies. Rather, we reverse because Respondent failed as a matter of law to meet the applicable standard governing the discovery of trade secrets.
[14] S.C. Code Ann. § 39-8-60 (B).
[15] Rule 26 (c)(7), SCRCP.
[16] Compare Bridgestone Americas Holding, Inc. v. Mayberry, 878 N.E.2d 189 (Ind. 2007); In re Bridgestone/Firestone, Inc., 106 S.W.3d 730 (Tex. 2003) citing In re Continental Tire, Inc., 979 S.W. 2d 609, (Tex. 1998), relied upon by the majority, both of which came before the reviewing courts under the more liberal “abuse of discretion” standard of review.
Mar 24, 2012 | Car Accidents, Personal Injury, Uncategorized
This case makes a critical distinction between tort law and contract causes of action. Here, the alleged defect in the product (cruise control in truck) only resulted in harm to the product itself. Fortunately, the defect did not cause an accident that injured or killed. Rather, the vehicles caught fire and were consumed. As a result, the Court affirmed that the only recovery available to the vehicle owners was under contract liability, not a tort action. Tort liability is only an option where a product defect causes harm to other property or personal injury. This distinction is critical is determining what damages you can seek. Of course, we are always grateful when only property damage is involved. Property can always be replaced. You and your family cannot.
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THE STATE OF SOUTH CAROLINA
In The Supreme Court
Jeffrey M. Sapp, Jr., Appellant,
v.
Ford Motor Company, Respondent.
Appeal from Jasper County
John C. Few, Circuit Court Judge
and
Bryan D. Smith, Appellant,
v.
Ford Motor Company, Respondent.
Appeal from York County
S. Jackson Kimball, III, Special Circuit Court Judge
Opinion No. 26754
Heard April 21, 2009 – Filed December 21, 2009
AFFIRMED IN RESULT
Karl S. Brehmer and L. Darby Plexico, III, both of Brown & Brehmer, Columbia, for Appellants Jeffrey M. Sapp, Jr. and Bryan D. Smith.
Curtis Lyman Ott and Carmelo B. Sammataro, both of Turner Padget Graham & Laney, of Columbia, for Respondent.
Ryan A. Earhart, Erin E. Richardson, and Patrick C. Wooten, all of Nelson, Mullins, Riley & Scarborough, of Charleston, for amicus curiae South Carolina Defense Trial Attorneys’ Association.
CHIEF JUSTICE TOAL: In these consolidated appeals, the trial courts found the economic loss rule precluded Appellants’ tort claims and granted judgment in favor of Respondent Ford Motor Company. We affirm the dismissal, and overrule Colleton Preparatory Academy, Inc. v. Hoover Universal Inc., 379 S.C. 181, 666 S.E.2d 247 (2008) to the extent it expands the narrow exception to the economic loss rule articulated in Kennedy v. Columbia Lumber & Mfg. Co., 299 S.C. 335, 384 S.E.2d 730 (1989).
FACTUAL/PROCEDURAL BACKGROUND
I. Sapp Appeal
In 2004, Appellant Jeffrey M. Sapp purchased a 2000 Ford F-150 truck from Atlantic Coast Construction for $5,000. The truck had 190,000 miles on it at the time of sale and Sapp bought it “as is.” On May 16, 2005, while Sapp was driving the truck, the cruise control stopped working, and the truck caught fire shortly after Sapp parked.
The fire did not injure Sapp or damage any property other than the vehicle itself. He filed a claim with his insurance company, and approximately three months later, the truck was repaired and returned to him. The repair costs were approximately $7,000.
Sapp filed suit against Ford alleging causes of action for negligence, strict liability, breach of warranty, and fraud/misrepresentation. Sapp alleged Ford knew of a design defect in the cruise control switch, which would short circuit and cause a fire in the engine compartment. The trial court granted summary judgment as to all causes of action and specifically found that the economic loss rule precluded the tort claims.
II. Smith Appeal
On January 31, 2006, Appellant Bryan D. Smith’s 2000 Ford F-150 truck caught fire and was completely destroyed. Smith filed suit against Ford alleging causes of action for negligence, strict liability, breach of warranty, and negligent misrepresentation. Smith alleged Ford knew of the same design defect alleged in Sapp’s complaint. The master-in-equity dismissed Smith’s tort claims pursuant to the economic loss rule.
STANDARD OF REVIEW
Summary judgment is appropriate where there is no genuine issue of material fact and it is clear that the moving party is entitled to a judgment as a matter of law. Rule 56(c), SCRCP. In determining whether any triable issues of fact exist, the evidence and all inferences that can be reasonably drawn from the evidence must be viewed in the light most favorable to the nonmoving party. Koester v. Carolina Rental Ctr., 313 S.C. 490, 493, 443 S.E.2d 392, 394 (1994).
Any party may move for a judgment on the pleadings under Rule 12(c), SCRCP. A judgment on the pleadings is proper where there is no issue of fact raised by the complaint that would entitle plaintiff to judgment if resolved in plaintiff’s favor. Russell v. City of Columbia, 302 S.C. 86, 89, 406 S.E.2d 338, 339 (1991).
LAW/ANALYSIS
Appellants argue the trial courts erred in granting summary judgment based on the economic loss rule. We disagree.
The economic loss rule is a creation of the modern law of products liability. Under the rule, there is no tort liability for a product defect if the damage suffered by the plaintiff is only to the product itself. Kennedy v. Columbia Lumber & Mfg. Co., 299 S.C. 335, 341, 384 S.E.2d 730, 734 (1989). In other words, tort liability only lies where there is damage done to other property or personal injury. Id.
The purpose of the economic loss rule is to define the line between recovery in tort and recovery in contract. Contract law seeks to protect the expectancy interests of the parties. Tort law, on the other hand, seeks to protect safety interests and is rooted in the concept of protecting society as a whole from physical harm to person or property. In the context of products liability law, when a defective product only damages itself, the only concrete and measurable damages are the diminution in the value of the product, cost of repair, and consequential damages resulting from the product’s failure. Stated differently, the consumer has only suffered an economic loss. The consumer has purchased an inferior product, his expectations have not been met, and he has lost the benefit of the bargain. In this instance, however, the risk of product failure has already been allocated pursuant to the terms of the agreement between the parties. On the other hand, the parties have not bargained for the situation in which a defective product creates an unreasonable risk of harm and causes personal injury or property damage. Accordingly, where a product damages only itself, tort law provides no remedy and the action lies in contract; but when personal injury or other property damage occurs, a tort remedy may be appropriate.
In Kennedy, we held the economic loss rule does not preclude a homebuyer from recovering in tort against the developer or builder where the builder violates an applicable building code, deviates from industry standards, or constructs a house that he knows or should know will pose a serious risk of physical harm. Such an exception was and still remains necessary to protect homeowners. As explained in Kennedy, the mechanics of home purchasing have evolved and drastically changed over the past two hundred years and, accordingly, courts have shifted from following the doctrine of caveat emptor (“let the buyer beware”) to the doctrine ofcaveat venditor (“let the seller beware”).[1] A home is typically an individual’s single largest investment and is a completely different type of manufactured good than any other type of product that a consumer will buy. Moreover, courts have recognized that the transaction between a builder and a buyer for the sale of a home largely involves inherently unequal bargaining power between the parties. For these reasons, we created this narrow exception to the economic loss rule to apply solely in the residential home context.
The rule announced in Kennedy followed a long line of South Carolina cases directed toward protecting consumers only in the residential home building context,[2] and we noted that this holding followed cases from around the country expanding protections afforded to homebuyers and imposing tort liability on residential homebuilders.[3]
In Colleton Preparatory Academy, Inc. v. Hoover Universal Inc., 379 S.C. 181, 666 S.E.2d 247 (2008), this Court was faced with the issue of whether to expand the Kennedy exception to the economic loss rule beyond the residential home building context to all manufacturers. The majority held that the economic loss rule will not preclude a plaintiff from filing a products liability suit in tort where only the product itself is injured when the plaintiff alleges breach of duty accompanied by a clear, serious, and unreasonable risk of bodily injury or death. The dissent argued that this decision not only broadly expanded the exception to the economic loss rule, but also completely altered the law on products liability in South Carolina. In our view, the traditional economic loss rule provides a more stable framework and results in a more just and predictable outcome in products liability cases. Accordingly, we overrule Colleton Prep to the extent it expands the narrow exception to the economic loss rule beyond the residential builder context.
Furthermore, like the dissent in Colleton Prep, we, too, are cautious in permitting negligence actions where there is neither personal injury nor property damage. Imposing liability merely for the creation of risk when there are no actual damages drastically changes the fundamental elements of a tort action, makes any amount of damages entirely speculative, and holds the manufacturer as an insurer against all possible risk of harm. Carolina Winds Owners’ Ass’n, Inc. v. Joe Harden Builder, Inc., 297 S.C. 74, 87, 374 S.E.2d 897, 905 (Ct. App. 1988).
The Kennedy opinion did not signal a watershed moment in products liability law in South Carolina, nor did it alter the application of the economic loss rule in products liability cases. The Kennedy court specifically noted that “[t]he ‘economic loss rule’ will still apply where duties are created solely by contract. In that situation, no cause of action in negligence will lie.” Kennedy, 299 S.C. at 347, 384 S.E.2d at 737. Several opinions from the federal courts that were issued prior to Kennedy found South Carolina’s economic loss rule precluded a negligence action against a manufacturer,[4] and subsequent cases found that, in light of and notwithstanding Kennedy, the economic loss rule prohibited negligence actions against a manufacturer where duties were created solely by contract and where the product only injured itself or where the damage was contemplated by the parties’ contract.[5] We conclude the federal courts were correct in this regard.
At the time of our decision in Kennedy, we had no intention of the exception extending beyond residential real estate construction and into commercial real estate construction. Such a progression was in error and we now correct that expansion. Much less did we intend the exception to the economic loss rule to be applied well beyond the scope of real estate construction in an ordinary products liability claim. We emphasize the exception announced in Kennedy is a very narrow one, applicable only in the residential real estate construction context.
Turning to the merits of the instant appeals, we hold the trial courts properly granted judgment in favor of Ford on Appellants’ tort claims. The only damage caused by the defect in the trucks was damage to the trucks themselves – purely an economic loss to Appellants. Therefore, the economic loss rule precludes Appellants’ recovery in tort.
CONCLUSION
For the above reasons, we affirm the ruling of the trial courts.
PLEICONES and KITTREDGE, JJ., concur. WALLER, J., concurring in result only. BEATTY, J., concurring in result only in a separate opinion.
JUSTICE BEATTY (concurring in result): I concur but write separately. This Court heralded a change in its view of the economic loss rule in Kennedy v. Columbia Lumber & Mfg. Co., 299 S.C. 335, 384 S.E.2d 730 (1989). The Court gave no indication that its new analytical framework was limited to residential housing construction. In proclaiming its new framework, the Court set about a review of the Court of Appeals’ economic loss analysis in Carolina Winds Owners’ Ass’n v. Joe Harden Builder, Inc., 297 S.C. 74, 374 S.E.2d 897 (Ct. App. 1988). In rejecting the opinion of the Court of Appeals, this Court concluded that the traditional analysis of the economic loss rule was problematical. The Court, referring to the analysis of the Court of Appeals, stated:
Where a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only “economic” losses. Conversely, where a purchaser buys a product which is defective and physically harms him, his remedy is in either tort or contract. This is so, the analysis provides, because his losses are more than merely “economic.”
We find that this legal framework generates difficulties. This is so because the framework’s focus is on consequence, not action. Builder “A” and Builder “B” can be equally blameworthy, and build equally shoddy housing, but because Builder “A”‘s negligence happened to be discovered early enough, no one was harmed. It hardly seems fair that Builder “A” should profit from a diligent buyer’s discovery, or because he was fortunate.
The framework we adopt focuses on activity, not consequence. If a builder performs construction in such a way that he violates a contractual duty only, then his liability is only contractual. If he acts in a way as to violate a legal duty, however, his liability is both in contract and in tort.
A builder is no less blameworthy in such a case where lady luck has smiled upon him and no physical harm has yet occurred. We discounted the necessity of showing physical harm in Terlinde, 275 S.C. 395, 271 S.E.2d 768 (1980), in which we considered and declined to adopt arguments asserting the “economic loss” rule contained in theTerlinde briefs.
Kennedy, 299 S.C. at 345-46, 384 S.E.2d at 736-37 (emphasis added).
Today, this Court would overrule Colleton Preparatory Acad., Inc. v. Hoover Universal, Inc., 379 S.C. 181, 666 S.E.2d 247 (2008).[i] Colleton adheres to the Kennedy analysis framework. If it is wrongly decided, then Kennedy should be overruled as well and this Court should simply say that the economic loss rule is not applicable to residential home building. Of course, this would not explain the negative treatment of the rule in other areas such as professional services. See Tommy L. Griffin Plumbing & Heating v. Jordan, Jones & Goulding, Inc., 320 S.C. 49, 55, 463 S.E.2d 85, 88-89 (1995) (finding design professionals, including engineers, may have a duty separate and distinct from contractual duties such that the economic loss doctrine would not prohibit a tort action);Beachwalk Villas Condo. Ass’n v. Martin, 305 S.C. 144, 146-47, 406 S.E.2d 372, 374 (1991) (finding a special duty for architects);Lloyd v. Walters, 276 S.C. 223, 226, 277 S.E.2d 888, 889 (1981) (finding an attorney liable for economic loss to a corporate shareholder when attorney breached a duty to the corporation); but see McCullough v. Goodrich & Pennington Mortgage Fund, Inc., 373 S.C. 43, 53, 644 S.E.2d 43, 49 (2007) (rejecting the notion of a special duty in the secured transactions arena).
The inconsistent treatment of the doctrine, by use of varying analytical frameworks, does not provide the bench and bar guidance in the proper application of the doctrine. The Court should simply pronounce a list of areas to which public policy prohibits the application of the economic loss doctrine and forego any legal analysis.
[1] A more complete history of the evolution of the law in this area, along with several additional useful sources, can be found atKennedy, 299 S.C. at 342-44, 384 S.E.2d at 735-36.
[2] See Roundtree Villas Ass’n, Inc. v. 4701 Kings Corp., 282 S.C. 415, 321 S.E.2d 46 (1984) (holding that where the lender undertook to repair defects in the housing units in order to facilitate further sales, the lender could be held liable in tort for negligent repairs); Terlinde v. Neely, 275 S.C. 395, 271 S.E.2d 768 (1980) (holding that a subsequent purchaser of a home may pursue a cause of action in contract or tort against a developer); Lane v. Trenholm Bldg. Co., 267 S.C. 497, 229 S.E.2d 728 (1976) (holding that when a new building is sold, there is an implied warranty of fitness for its intended use which springs from the sale itself);Rutledge v. Dodenhoff, 254 S.C. 407, 175 S.E.2d 792 (1970) (recognizing that a builder-vendor of a new home gives its purchasers an implied warranty of fitness); Rogers v. Scyphers, 251 S.C. 128, 161 S.E.2d 81 (1968) (recognizing a builder’s duty to refrain from constructing housing it knows or should know will pose a serious risk of physical harm).
[3] See Huang v. Garner, 203 Cal. Rptr. 800 (Cal. App. 1984); Barnes v. Mac Brown & Co., 342 N.E.2d 619 (Ind. 1976); Village Cross Keys Inc. v. The United States Gypsum Co., 556 A.2d 1126 (Md. 1989); Oates v. JAG, Inc., 333 S.E.2d 222 (N.C. 1985); New Mea Construction Corp. v. Harper, 497 A.2d 534 (N.J. 1985); Sewell v. Gregory, 371 S.E.2d 82 (W. Va. 1988).
[4] See Laurens Electric Cooperative v. Altec Industries, 889 F.2d 1323 (4th Cir. 1989) (prohibiting a products liability claim where the only injury sustained was to the product itself); 2000 Watermark Ass’n v. Celotex Corp., 784 F.2d 1183 (4th Cir. 1986) (prohibiting a tort claim against a defendant who negligently installed defective shingles pursuant to our economic loss rule); Purvis v. Consolidated Energy Products Co., 674 F.2d 217 (4th Cir. 1982) (holding under South Carolina’s economic loss rule, a tobacco farmer could not maintain an action against a barn manufacturer because his only injury was an economic loss to his tobacco crop and the barn itself).
[5] See Palmetto Linen Service, Inc. v. U.N.X., Inc., 205 F.3d 126 (4th Cir. 2000) (upholding the dismissal of plaintiff’s negligence claim pursuant to South Carolina’s economic loss rule where defendant’s chemical dispensing system harmed only plaintiff’s linens because the destruction of the linens was a “natural and foreseeable result of a malfunction” and the parties contemplated this allocation of risk in their contract); Myrtle Beach Pipeline Corp. v. Emerson Elec. Co., 843 F. Supp. 1027 (D.S.C. 1993), aff’d, 46 F.3d 1125 (4th Cir. 1995) (dismissing plaintiff’s tort claim where defendant’s product, an air eliminator, ruptured causing an oil spill because plaintiff’s loss was only to the defective air eliminator since plaintiff did not own the property which the defective air eliminator damaged).
[i] Colleton Preparatory Academy, Inc. limited recovery to the cost of repair suffered by the plaintiff even in a tort action when there is no bodily injury. However, it did not require the plaintiff to wait until injury occurred to bring an action in tort.
