Free Brief in Support of Motion - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Civil Action No. 01-cv-2056-JLK-MJW UNITED STATES AVIATION UNDERWRITERS, INC., a New York corporation; PAUL LEADABRAND, an Idaho resident; and JEFLYN AVIATION, INC. d/b/a ACCESS AIR, an Idaho corporation, Plaintiffs, vs. PILATUS BUSINESS AIRCRAFT, LTD., a Colorado corporation; PILATUS FLUGZEUGWERKE AKTIENGESELLSCHAFT, a Swiss corporation; PILATUS AIRCRAFT, LTD., a Swiss corporation; PRATT & WHITNEY CANADA, INC., a Canadian corporation; and DOES 1 through 500, Inclusive, Defendants.

DEFENDANT PRATT & WHITNEY CANADA'S MEMORANDUM BRIEF IN SUPPORT OF MOTION FOR RECONSIDERATION OF FEBRUARY 28, 2005 ORDER AND FOR SUMMARY JUDGMENT Defendant Pratt & Whitney Canada Corp. ("PWC"), by its attorneys, hereby submits its Memorandum Brief in Support of Motion for Reconsideration of February 28, 2005 Order and for Summary Judgment dismissing Plaintiffs' claims against PWC. INTRODUCTION This subrogation action arises out an accident involving a single-engine Pilatus PC-12 aircraft in the Sea of Okhotsk off the eastern coast of Russia on July 8, 2001 during a flight from Hakodate, Japan to Magadan, Russia. The pilot reported that he encountered engine problems and elected to shut down the engine and ditch the aircraft in the ocean. The pilot and three

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passengers survived the successful ditching and were rescued from their life raft by a Russian ship. The aircraft presumably sank and has not been recovered. Plaintiff United States Aviation Underwriters, Inc. paid the aircraft owner for the total loss of the aircraft and now seeks to recover that economic loss from the defendants on its subrogated tort claims in this case. PWC manufactured the engine and sold it to the aircraft manufacturer Pilatus Aircraft, Ltd. who installed the engine in the aircraft. The aircraft was purchased by DJS Aviation in Boise, Idaho for commercial use under the professional management of Plaintiff Jeflyn Aviation, Inc., dba Access Air, pursuant to a commercial lease. The aircraft was being operated on a charter flight by Access Air and its employee pilot at the time of the accident. United States Aviation Insurance Group, through its underwriting and claims manager United States Aviation Underwriters, Inc. (collectively "USAU"), insured the aircraft for commercial use and paid the claim for the loss of the aircraft to the aircraft owner DJS Aviation Plaintiffs have stated two claims for relief against the Defendants, for negligence and strict liability in tort (§ 402A). 1 PWC filed its Motion for Summary Judgment on September 19, 2002 on the grounds that Plaintiffs' tort claims are barred by the economic loss rule, and the Pilatus Defendants joined in the Motion. The Court issued its Order on Motion for Summary Judgment on February 28, 2005 and denied the Motion, finding that the economic loss rule does not bar Plaintiffs' tort claims for the loss of the aircraft. The Court also found that liability in this case would be limited to the value of the lost aircraft and would not include recovery for commercial or business loss. Plaintiff USAU is the only plaintiff with a claim for the value of the lost aircraft. Plaintiff Access Air's claims are limited to loss of revenue and business income, and increased business

1

The passengers' personal injury action, No. 03-cv-1209-JLK-PAC, was dismissed with prejudice July 14, 2005.

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expenses, which the Court indicated could not be recovered. Plaintiff Leadabrand's claims are for travel expenses and the relatively minimal loss of his personal property that was onboard the aircraft, for which he has been fully compensated by USAU and Access Air. Plaintiff USAU is therefore the only plaintiff with a viable claim, and USAU's only claim is a subrogation claim for the amount it paid the owner of the aircraft DJS Aviation for the loss of the aircraft, which is a claim for economic loss. Plaintiffs Access Air and Leadabrand should thus be dismissed. Defendant PWC therefore respectfully moves the Court to reconsider that Order of February 28, 2005, based in part on a consideration of new evidence in the record of this case and in part on the choice of admiralty law. PWC thus renews its Motion for Summary Judgment on the grounds that the economic loss rule clearly bars Plaintiff USAU's tort claims under admiralty law. STATEMENT OF UNDISPUTED MATERIAL FACTS Defendant PWC incorporates by this reference its Statement of Undisputed Material Facts set forth in its Brief in Support of Motion for Summary Judgment filed September 19, 2002, and its Reply Concerning Undisputed Facts set forth in its Reply Brief filed November 8, 2002. The following material facts are also undisputed: 1. DJS Aviation LLC was the owner of the aircraft at the time of the loss. Ex. A-5,

FAA Bill of Sale; Ex. A-18, Simplot depo, p. 52, l. 14-23. 2. DJS Aviation LLC executed an Idaho Sales Tax Resale or Exemption Certificate

when it took delivery of the aircraft on December 12, 2000 certifying that the aircraft would be used to transport passengers or freight for hire. Ex. A-21.

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3.

DJS Aviation LLC was an insured under USAU Aviation Insurance Policy

Number SIHL 1-737A. Ex. A-12, p. A-2, A-21; Ex. A-19, Hutchens depo, p. 116, l. 18 through p. 117, l. 3. 4. Plaintiff USAU paid DJS Aviation LLC for the loss of the aircraft pursuant to its

obligations under Aviation Insurance Policy Number SIHL 1-737A. Ex. A-18, Simplot depo, p. 51, l. 4-25; p. 58, l. 24 through p. 59, l. 4; Ex. A-19, Hutchens depo, p. 21, l. 10-11. 5. 52, l. 17-19. LEGAL STANDARD FOR SUMMARY JUDGMENT Rule 56(c) of the Federal Rules of Civil Procedure permits entry of summary judgment where the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, show that there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-248, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986); UIHI v. Wharf (Holdings) Ltd., 946 F.Supp. 861, 865 (D.Colo. 1996). CHOICE OF LAW Defendant PWC stated in its Motion for Summary Judgment that the Court did not have to decide whether admiralty or Colorado law governed this action because the economic loss rule barred Plaintiffs' tort claims under either law, but suggested that if a choice-of-law determination were necessary admiralty law should apply. The Court did not make any choice-of law Access Air had no ownership interest in the aircraft. Ex. A-18, Simplot depo, p.

determination in its Order of February 28, 2005 because it found that the economic loss rule did not bar Plaintiffs' tort claims under either admiralty or Colorado law. Defendant PWC

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respectfully requests that the Court now determine whether admiralty or Colorado law is to be applied in this case, and submits that admiralty law should be applied. This is an admiralty case because Plaintiffs' tort claims have a maritime locality and there is a significant relationship between the activity giving rise to the claims and traditional maritime activity. Executive Jet Aviation, Inc. v. City of Cleveland, Ohio, 409 U.S. 249, 268, 93 S.Ct. 493, 504, 34 L.Ed.2d 454 (1972). The aircraft accident giving rise to Plaintiffs' claims occurred on the high seas and there is a significant relationship between the transoceanic flight from Japan to Russia and traditional maritime activity. Roberts v. United States, 498 F.2d 520, 524 (9th Cir. 1974); Hammill v. Olympic Airways, S.A., 398 F.Supp. 829, 834 (D.D.C. 1975). Executive Jet involved the crash of an aircraft in Lake Erie just after takeoff from Cleveland and the narrow holding of Executive Jet was "there is no federal admiralty jurisdiction over aviation tort claims arising from flights by land-based aircraft between points within the continental United States." Id., 409 U.S. at 274, 93 S.Ct. at 507. The Supreme Court found in a subsequent aviation case that admiralty jurisdiction was expressly provided under the Death on the High Seas Act, 41 Stat. 537, 46 U.S.C. § 761 et seq., but that "[e]ven without this statutory provision, admiralty jurisdiction is appropriately invoked here under traditional principles because the accident occurred on the high seas and in furtherance of an activity bearing a significant relationship to a traditional maritime activity." Offshore Logistics v. Tallentire, 477 U.S. 207, 218-219, 106 S.Ct. 2485, 2492, 91 L.Ed. 2d 174 (1986). That case arose from the crash of helicopter transporting workers to oil rig off the Louisiana coast and the Supreme Court found that "[a]lthough the decedents were killed while riding in a helicopter and not a more traditional maritime conveyance, that helicopter was engaged in a function traditionally

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performed by waterborne vessels; the ferrying of passengers from an `island,' albeit an artificial one, to the shore." Id. at 219. Other aviation cases in which admiralty jurisdiction was found to be appropriately invoked are Williams v. United States, 711 F.2d 893, 896 (9th Cir. 1983)(admiralty jurisdiction lies over claims arising from mid-Pacific crash of aircraft on transoceanic flight from California to Hawaii), Roberts v. United States, 498 F.2d 520, 524 (9th Cir. 1974)(admiralty jurisdiction lies over claims arising from crash of aircraft in international waters approaching Okinawa for landing on transoceanic flight from Los Angeles; geographic realities do not make crash in navigable waters during transoceanic flight entirely "fortuitous") and Hammill v. Olympic Airways, S.A., 398 F.Supp. 829, 834 (D.D.C. 1975)(admiralty jurisdiction lies over claims arising from crash of aircraft in international waters approaching Athens for landing on flight from the Greek island of Corfu). Another aviation case in which admiralty jurisdiction was appropriately invoked is In re Air Crash Off Point Mugu, California, 145 F.Supp.2d 1156, 1163-1165 (N.D.Cal. 2001). The tort claims in that case arose from the crash of an airliner off the coast of California on a flight from Puerto Vallarta, Mexico to San Francisco. Citing Executive Jet and subsequent aviation cases the Court held that "admiralty jurisdiction lies if, but for aviation, the journey would have been conducted by sea." Id. at 1165 (emphasis added). A journey from Japan to Russia across the Sea of Okhotsk would most certainly have to be conducted by sea but for aviation. A recent case that analyzes the requirements for admiralty jurisdiction in aviation cases is Isla Nena Air Servs. V. Cessna Aircraft Co., 380 F.Supp. 2d 74 (D.P.R. 2005) which involved the ditching of an aircraft off the coast of Puerto Rico. In finding that it did have admiralty jurisdiction the Court followed Executive Jet and three subsequent cases: Foremost Ins. Co. v.

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Richardson, 457 U.S. 668, 675 n. 5, 102 S.Ct. 2654, 2658 n. 5, 73 L.Ed.2d 300 (1982), Sisson v. Ruby, 497 U.S. 358, 362, 110 S.Ct. 2892, 2896, 111 L.Ed.2d 292 (1990), and Grubart v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 115 S.Ct. 1043, 130 L.Ed. 2d 1024 (1993). The Court found that these three cases "raise two issues under Executive Jet's second prong [the maritime nexus]: (1) whether the incident has a `potential disruptive impact on maritime commerce' (viewing the `general features of the type of incident involved'); and (2) whether the `general character' of the `activity giving rise to the incident' bears a `substantial relationship to traditional maritime activity.' See, Sisson, 497 U.S. at 363-65." Isla Nena, 380 F.Supp 2d at 77. An aircraft ditching in navigable waters has a potentially disruptive impact on maritime commerce by definition. Sisson, 497 U.S. at 362; Foremost, 457 U.S. at 675 n.5. But in this case the PC-12 ditching did have a significant disruptive impact on maritime commerce. The pilot has said he intentionally flew over recognized shipping lanes as a precaution that proved to be a factor in the rescue. The pilot ditched the aircraft in the commercial shipping lane and he and his passengers were rescued by a Russian ship after a large air and sea search and rescue effort that lasted more than fifteen hours. Ex. A-13, Smith depo Ex. 48; Ex. A-14, Smith depo, p. 209, l. 24 through p. 211, l. 19. The airplane was last seen floating on the ocean three or four hours after impact and it may have continued to float for days. Ex. A-15, Leadabrand depo, p. 83, l. 18 ­ 23. The ditching of the PC-12 in the Sea of Okhotsk and the rescue of its occupants clearly had a disruptive impact on maritime commerce. With regard to the second prong of the maritime nexus analysis the Isla Nena Court noted, citing numerous cases from various jurisdictions, that "today virtually every court considering the issue has found that aircraft crashes during overseas or inter-island flights

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involve a traditional maritime activity." Isla Nena, 380 F.Supp 2d at 80. The overseas flight of the PC-12 from Japan to Russia definitely involved traditional maritime activity and this Court therefore has admiralty jurisdiction over this case. Admiralty law applies if the Court has admiralty jurisdiction and preempts Colorado law even though Plaintiffs have asserted diversity jurisdiction rather than admiralty jurisdiction and stated claims under the Colorado Products Liability Act. East River Steamship Corp. v.

Transamerica Delaval, Inc., 476 U.S. 858, 864, 106 S.Ct. 2295, 2298-2299, 90 L.Ed.2d 865 (1986); Isla Nena, 380 F.Supp. 2d at 81 n. 4; In re Air Disaster Near Honolulu, Hawaii, 792 F.Supp. 1541, 1544 (N.D.Cal. 1990). ARGUMENT Plaintiffs' tort claims are barred in admiralty by the economic loss rule. Defendant PWC will not repeat the arguments set forth in its Memorandum Brief and Reply in Support of its Motion for Summary Judgment but incorporates those arguments and Briefs by this reference and will only address the Court's Order of February 28, 2005 in this Motion. A. Plaintiff USAU's Claims

The Court found in its Order of February 28, 2005 that liability in this case would be limited to the value of the lost aircraft and would not include recovery for commercial or business loss. Plaintiff USAU is the only plaintiff with a claim for the value of the lost aircraft, and that interest only arises from its payment for the loss of the aircraft to its insured aircraft owner DJS Aviation. The aircraft was owned by DJS Aviation and Access Air had no ownership interest in the aircraft at the time of the loss. Ex. A-18, Simplot depo, p. 52, l. 14-23. Access Air never had any ownership interest in the aircraft and has not stated a claim for the value of the

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aircraft in this case. This case is therefore a subrogation action by an insurance company to recover the amount it paid to its insured aircraft owner for the loss of the aircraft under a commercial aviation insurance policy. USAU's claim is a claim for economic loss that is barred by the economic loss rule. DJS Aviation was the insured aircraft owner under the policy and was paid for the loss of the aircraft by USAU. The policy states at page A-2 that payments for covered losses under the aircraft physical damage coverage will be made to the named insured and to each owner, lessor and/or lien holder for the aircraft, as their respective interests may appear. Ex. A-12. On page A21 of its policy USAU makes it clear that its physical damage coverage protects the interests of the owner, lien holder or lessor of the aircraft as well as the named insured. Ex. A-12. As the owner/lessor of the aircraft DJS Aviation was insured under the policy and was paid for the loss by USAU. Ex. A-19, Hutchens depo, p. 21, l. 10-11; p. 116, l. 18 through p. 117, l. 3. Plaintiff USAU therefore stands in the shoes of DJS Aviation with respect to its subrogation claim for the value of the lost aircraft and has no greater rights than DJS Aviation. Access Air has no compensable claim for the loss of the aircraft. B. The Sale and Purchase of the Aircraft was a Commercial Transaction

The Court found in its Order of February 28, 2005 that Access Air did not purchase the aircraft in a commercial transaction and did not bargain for any rights or obligations. The Court also noted that equality of bargaining power and meaningful allocation or risk are touchstones of the Supreme Court's analysis in East River. After completion of discovery, however, it is clear that the sale and purchase of the aircraft was a commercial transaction between parties with equal bargaining power and that there was a meaningful allocation of risk.

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The Pilatus PC-12 was purchased by DJS Aviation LLC. DJS Aviation is a wholly owned subsidiary of DJS Properties L.P. and was formed for the purpose of owning the Pilatus aircraft. Ex. A-18, Simplot depo, p. 22, l. 12-15; p. 40, l. 10-14; Ex. A-20, Memorandum of Formation, DJS Aviation LLC. DJS Properties is a holding company owned by members of the Simplot family that owns a number of other companies in addition to DJS Aviation. Ex. A-18, Simplot depo, p. 7, l. 1-18. J. R. Simplot Company is a privately held company owned by members of the Simplot family that has been doing business for many years and is one of the largest companies in Idaho with $3 billion in annual sales. Ex. A-18, Simplot depo, p. 39, l. 7 through p. 40; l.1; p.40, l. 24 through p. 41, l.18. J. R. Simplot is the founder of the Simplot companies and Don J. Simplot's father. Don Simplot owns varying degrees of interests and has held various positions in the Simplot companies for more than 45 years. Ex. A-18, Simplot depo, p. 6, l. 11-25. He owns the controlling interest in DJS Properties and is the manager of DJS Aviation. Ex. A-18, Simplot depo, p. 7, l. 11-15; Ex. A-20, Memorandum of Formation, DJS Aviation LLC. The DJS in DJS Properties and DJS Aviation is Don J. Simplot. Ex. A-18, Simplot depo, p. 40, l. 20-23. Mr. Simplot is a pilot who had negotiated the purchase of a number of aircraft by various Simplot companies prior to DJS Aviation's purchase of the Pilatus PC-12, including the purchase of considerably more expensive corporate jets. Ex. A-18, Simplot depo, p. 8, l. 3-25; p. 13, l. 12-24; p. 42, l. 12-19. He had also negotiated many contracts for the Simplot companies involving considerably more complicated commercial transactions and much more money than the purchase of the Pilatus PC-12. Ex. A-18, Simplot depo, p. 11, l. 11-18; p. 41, l. 22 through p. 42, l. 11.

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Mr. Simplot personally negotiated the purchase of the Pilatus aircraft and the lease to Access Air. Ex. A-18, Simplot depo, p. 42, l. 15-19; p. 55, l. 10 through p. 56, l. 24; Ex. A-19, Hutchens depo, p. 160, l. 2-23. He negotiated the purchase and executed the Aircraft Purchase Agreement in the name of "Don Simplot and/or Assigns" and then formed DJS Aviation before the aircraft was delivered such that the FAA Aircraft Bill of Sale reflects a sale by Western Aircraft, Inc. to DJS Aviation LLC. Ex. A-5; Ex. A-18, Simplot depo, p. 15, l. 8-22; p. 40, l. 1014. He was "very familiar with most airplanes out there" and "probably" considered other airplanes before buying the Pilatus. Ex. A-18, Simplot depo, p. 12, l. 4-9. He decided to buy the aircraft because it was a "good business venture" and he "could write it off." Ex. A-18, Simplot depo, p. 11, l. 19 through p. 12, l. 3; p. 42, l. 20 through p. 43, l. 7. He purchased the aircraft with the specific intent to lease it to Access Air for use in commercial charter operations. Ex. A18, Simplot depo, p. 25, l. 18-20. An essential purpose of the purchase was that the aircraft be used commercially to produce revenue and DJS Aviation did receive revenue from Access Air's charter operations. Ex. A-18, Simplot depo, p. 43, l. 25 through p. 45, l. 1. Mr. Simplot would not have bought the aircraft if it was not going to be professionally managed and operated by Access Air pursuant to the lease. Ex. A-18, Simplot depo, p. 43, l. 8-24. He executed an Idaho Sales Tax Resale or Exemption Certificate when DJS Aviation took delivery of the aircraft certifying that it would be used to transport passengers or freight for hire, so that DJS Aviation would not have to pay sales tax. Ex. A-21, Idaho Sales Tax Resale or Exemption Certificate; Ex. A-18, Simplot depo, p. 30, l. 13 through p. 31, l. 17; p. 45, l. 8-17. Mr. Simplot negotiated the price he would pay for the Pilatus aircraft. Ex. A-18, Simplot depo, p. 13, l. 4-5; p. 56, l. 6-11. The aircraft and engine warranties were not particularly

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significant to him in his negotiations but he was satisfied with the deal he negotiated and did not have any concerns about the warranties. Ex. A-18, Simplot depo, p. 17, l. 1-3; p. 55, l. 12-21. He therefore initialed the page of the Aircraft Purchase Agreement containing the section captioned WARRANTY; REMEDIES; DISCLAIMER, and signed the PILATUS PC-12 NEW AIRCRAFT LIMITED WARRANTY POLICY. Ex. A-5, Aircraft Purchase Agreement, p. 3; Ex. B-4, p. 4; Ex. A-18, Simplot depo, p. 16, l. 11-15. He also testified that when he signed the Aircraft Purchase Agreement he intended to be bound by its terms and agreed to the warranties that came with it. Ex. A-18, Simplot depo, p. 19, l. 15-20; p. 56, l. 22 through p. 57, l. 5. The sale and purchase of the Pilatus PC-12 aircraft was a commercial transaction in every respect, between parties with equal bargaining power, and the fact that Access Air was operating the aircraft at the time of the loss is of no consequence. The application of the economic loss rule is based on the sale of a product by the manufacturer to the first user, and not the lease or sale to a subsequent user. The plaintiffs in East River did not purchase the ships and did not bargain for any warranties ­ they chartered the ships from the owner. East River, 476 U.S. at 859-860. Nor did the plaintiff in Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875, 138 L. Ed. 2d 76, 117 S.Ct. 1783 (1997). The plaintiff in that case was a subsequent user who purchased the ship from the initial user who purchased it from the manufacturer, but the Supreme Court analyzed the application of the economic loss rule by focusing on the first sale by the manufacturer to the initial user, rather that the sale to the subsequent user. Id. at 879. The Lease Agreement between DJS Aviation (Lessor) and Access Air (Lessee) specifies in section 4, Insurance, that "A. Aircraft insurance will be maintained by LESSEE and the cost of such insurance will be paid for by LESSOR. The Named Insureds on said policy will include

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DJS AVIATION, LLC (LESSOR), DON SIMPLOT (an individual) and JEFLYN AVIATION, INC. dba ACCESS AIR (LESSEE)." Ex. A-6, p. 4. Access Air did add the Pilatus aircraft to its USAU Policy Number SIHL 1-737A, which provided coverage for a number of other aircraft, and DJS Aviation did pay the additional premium associated with the aircraft. Ex. A-19, Hutchens depo, p. 116, l. 10-17; Ex. A-18, Simplot depo, p. 28, l. 13-18. James Hutchens, the president and owner of Access Air, testified in his deposition that to the best of his knowledge DJS Aviation and Don Simplot were named insureds on the policy. Ex. A-19, Hutchens depo, p. 116, l. 18 through p. 117, l. 3. Mr. Hutchens also testified that "[t]he actual [insurance] payment for the aircraft went directly to Mr. Simplot." Ex. A-19, Hutchens depo, p. 21, l. 10-11. Mr. Simplot also testified that he did receive payment for the loss from USAU, although he could not recall if the check was made payable to him personally or DJS Aviation. Ex. A-18, Simplot depo, p. 51, l. 4-25; p. 58, l. 24 through p. 59, l. 4. DJS Aviation, Don Simplot and Access Air are therefore all insureds under the USAU policy and Plaintiff USAU stands in their shoes in its pursuit of this subrogation action. The purchase of the Pilatus aircraft by Mr. Simplot/DJS Aviation was clearly a commercial transaction as was the lease to Access Air for the purpose of generating revenue in commercial aircraft charter operations. Mr. Simplot was actually in a superior bargaining position in his negotiations for the purchase of the aircraft due to his vastly superior wealth and the availability of other comparable aircraft on the market that he had considered, based on his knowledge of the market and previous ownership of a number of aircraft. He negotiated the purchase and fully intended to be bound by all of the terms of the Aircraft Purchase Agreement he executed, including the exclusive remedies and limitations contained in the warranties.

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C.

The Loss of the Aircraft is Damage to the Product Itself

The Court found in its Order of February 28, 2005 that the loss of the aircraft was more than damage to the warrantied product itself and that neither federal nor state law supported Defendants' assertions to the contrary. PWC respectfully suggests that admiralty law clearly supports its assertion that the aircraft and its engine are a single integrated product and that the loss of the aircraft as a result of the engine shutdown is damage to the product itself. The economic loss rule was enunciated by the Supreme Court in East River Steamship Corp. v. Transamerica Deleval, Inc., 476 U.S. 858, L. Ed. 2d 865, 106 S.Ct. 2295 (1986). "A manufacturer in a commercial relationship has no duty under either a negligence or strict products-liability theory to prevent a product from injuring itself." Id. at 870. "When a product injures only itself the reasons for imposing a tort duty are weak and those for leaving the party to its contract remedies are strong." Id.at 871. "Damage to a product itself is most naturally understood as a warranty claim." Id. Damage to a completed product caused by a component part is damage to the product itself. Id. at 867; Petroleum Helicopters, Inc. v. Avco Corp., 930 F.2d 389, 391 (5th Cir. 1991). "Since all but the very simplest of machines have component parts, [a contrary] holding would require a finding of `property damage' in virtually every case where a product damages itself. Such a holding would eliminate the distinction between

warranty and strict products liability." East River, 476 U.S. at 867 (quoting Northern Power & Engineering Corp. v. Caterpillar Tractor Co., 623 P.2d 324, 330 (Alaska 1981)). The economic loss rule as enunciated in East River bars tort actions for damage to the defective product itself, including the total loss of the product, but not tort actions for damage to "other property" caused by a defective product. The Supreme Court addressed the "other

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property" exception and clarified the characterization of damage to the product itself in another admiralty case, Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875, 138 L. Ed. 2d 76, 117 S.Ct. 1783 (1997). That case arose out of an engine room fire and flood that led to the sinking of the fishing vessel M/V Saratoga allegedly caused by a defective hydraulic system installed on the vessel by the manufacturer before it was sold to the initial user. The District Court and Ninth Circuit held that the economic loss rule barred tort claims for the total loss of the vessel, but there were issues as to the award of damages for the loss of "other property". Saratoga Fishing Co. v. Marco Seattle Inc., 69 F.3d 1432 (9th Cir.1995). The primary issue before the Supreme Court was not whether the economic loss rule barred the tort claims for the total loss of the fishing vessel, but whether it barred tort actions for damage to equipment (a skiff, a fishing net and spare parts) added to the vessel by the initial user after the initial sale by the manufacturer. The Supreme Court first noted that "[i]n East River (citation omitted) the Court held that an admiralty tort plaintiff cannot recover for the physical damage the defective product causes to the `product itself'; but the plaintiff can recover for physical damage the product causes to `other property.'" Saratoga, 520 U.S. at 877. The Court then clarified the distinction by holding that "[w]hen a Manufacturer places an item in the stream of commerce by selling it to an Initial User, that item is the `product itself' under East River. Items added to the product by the Initial User are therefore `other property,' and the Initial User's sale of the product to a Subsequent User does not change these characterizations." Id. at 879. The Court then found that the equipment added to the fishing vessel by the initial user after the initial purchase was "other property" such that the economic loss rule did not bar tort claims for the

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destruction of that equipment whereas it did bar tort claims for the total loss of the fishing vessel itself. Isla Nena Air Servs. V. Cessna Aircraft Co., 380 F.Supp. 2d 74 (D.P.R. 2005) is a recent admiralty case arising out of an aircraft accident off the coast of Puerto Rico. In that case the aircraft was in cruise with a pilot and nine passengers on a commercial revenue flight when it experienced a loss of engine power and the pilot made an emergency landing close to the beach. No one was injured but the aircraft suffered major damage and the engine was destroyed. The operator of the aircraft sued the aircraft manufacturer Cessna and the engine manufacturer Pratt & Whitney Canada. The Court noted that the complaint alleged that "damage to the product (the aircraft) was caused by a defect in the product itself or in a component of the product." Id. at 82. Following East River and Saratoga the Court then found that the plaintiffs' tort claims were barred by the economic loss rule because the case involved "the commercial sale of an aircraft to plaintiffs, who used it for commercial purposes" and the tort claims sought only "recovery for economic losses associated with the damage or loss of the aircraft, and not for damage to other property or for personal injuries resulting from the accident." Id. at 81-82. One of the leading aviation cases to address this issue is National Union Fire Ins. v. Pratt & Whitney, 815 P.2d 601 (Nev. 1991), a case cited by the Supreme Court in Saratoga (520 U.S. at 883). In that case a Piper Cheyenne II aircraft crashed and was destroyed following an engine failure. The insurer of the aircraft paid its insured for the loss and then filed a subrogation action against Piper Aircraft and the engine manufacturer, Pratt & Whitney, asserting claims for negligence, strict products liability and breach of warranty. The Nevada Supreme Court found that the aircraft owner had purchased a "single integrated product consisting of numerous

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component parts," including the engines, and held, citing East River and cases from a number of other states, that the economic loss rule did bar the plaintiff insurer's tort claims for damage to the aircraft allegedly caused by the defective engine. See also Bocre Leasing Corp v. General Motors Corp. (Allison Gas Turbine Div.), 645 N.E. 2d 1195 (N.Y. 1995)(tort claims for damage to helicopter caused by loss of engine power barred by economic loss rule). Another aviation case that addresses this issue is American Eagle Ins. v. United Technologies Corp., 48 F.3d 1142 (5th Cir. 1995). That case arose out of the crash of a Cessna Caravan allegedly caused by a defective engine, and the federal court applying Texas law held that "[t]here is simply no evidence that the parties bargained separately for individual components of the aircraft. Consequently, the aircraft hull does not qualify as `other property' damage by the defective engine component." Id. at 1145. There is likewise no evidence in this case that the parties bargained separately for individual components of the aircraft. In this case the initial user DJS Aviation bargained for a factory assembled aircraft with its design engine, which was a single integrated product. The aircraft was placed in the stream of commerce by the manufacturer and distributor with an engine and the aircraft with an engine is the "product" for purposes of applying the economic loss rule. The lease of the aircraft to Access Air does not change that characterization. Saratoga, 520 U.S. at 879. Plaintiff USAU is only claiming damages for the loss of the "product itself" and the economic loss rule does bar its tort claims against the engine manufacturer PWC for the loss of the aircraft. D. Plaintiff USAU Has Suffered Only Economic Loss

The Court found in its Order of February 28, 2005 that the loss of the entire aircraft was more than just economic loss, which the Court noted was diminution in value as measured by

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repair costs, decreased value and lost profits. The Court essentially found that the economic loss rule would only apply in situations in which the product could be repaired and not in cases of a total loss. The economic loss rule does, however, apply to the total loss of the product under admiralty law. The Supreme Court held in East River that "whether stated in negligence or strict liability, no products-liability claim lies in admiralty when the only injury claimed is economic loss." East River, 476 U.S. at 876. The Court did not give any indication that economic loss was limited to cost of repairs and associated consequential damages, and did not include damages for the total loss of a product. Nor did the Court in Saratoga suggest any such distinction or limitation. Referring to East River the Saratoga Court noted that "[t]he Court reasoned that the loss of the value of a product that suffers physical harm ­ say, a product that destroys itself by exploding ­ is very much like the loss of the value of a product that does not work properly or does not work at all. See id. [East River] at 870." Saratoga, 520 U.S. at 879; see also Icelandic Coast Guard v. United Technologies Corp., 722 F.Supp. 942, 948 (D.Conn. 1989)(tort claim for total loss of helicopter was commercial economic loss barred by economic loss rule in admiralty). Claims for the total loss of a product such as the PC-12 aircraft and its engine are clearly claims for economic loss barred by the economic loss rule in admiralty under Supreme Court standards. CONCLUSION This is an admiralty case and Plaintiff USAU is claiming subrogation damages for economic losses resulting from damage to the product itself. The aircraft was placed in the stream of commerce and purchased by DJS Aviation in a commercial transaction as a single

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integrated product. Plaintiff USAU's claims against PWC are thus barred by the economic loss rule. Plaintiffs Access Air and Leadabrand do not have any viable claims and should be dismissed from this case for that reason. WHEREFORE, Defendant Pratt & Whitney Canada Corp. respectfully requests that the Court grant its Motion for Reconsideration of February 28, 2005 Order and for Summary Judgment and enter an order dismissing with prejudice all claims against PWC by all Plaintiffs. DATED this 19th day of October 2005. s/ William White Thomas J. Byrne William White BYRNE, KIELY & WHITE, L.L.P. 1120 Lincoln Street, Suite 1300 Denver, CO 80203 Telephone: (303) 861-5511 Facsimile: (303) 861-0304 ATTORNEYS FOR DEFENDANT PRATT & WHITNEY CANADA CORP. CERTIFICATE OF SERVICE I hereby certify that on this 19th day of October 2005, I electronically filed the foregoing DEFENDANT PRATT & WHITNEY CANADA'S MEMORANDUM BRIEF IN SUPPORT OF MOTION FOR RECONSIDERATION OF FEBRUARY 28, 2005 ORDER AND FOR SUMMARY JUDGMENT with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Jon A. Kodani, Esq. Jeffrey J. Williams, Esq. LAW OFFICES OF JON A. KODANI [email protected] Robert B. Schultz, Esq. LAW OFFICES OF ROBERT B. SCHULTZ [email protected] s/ William White Byrne, Kiely & White, L.L.P.

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