Kalitta Air, L.L.C. v. Central Texas Airborne Systems Inc.

Citation: 315 F. App'x 603Docket: Nos. 05-16841, 05-16842

Court: Court of Appeals for the Ninth Circuit; October 8, 2008; Federal Appellate Court

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Under California law, a plaintiff not in privity with a defendant cannot recover purely economic loss for negligent performance of services or negligent misrepresentation unless specific conditions are met. In the case involving Kalitta Air, L.L.C. (Kalitta) and Central Texas Airborne Systems, Inc. (Texas Airborne), the district court granted Texas Airborne's renewed motion for Judgment as a Matter of Law (JMOL) on Kalitta's negligence claim, while denying it for the negligent misrepresentation claim. The Ninth Circuit has jurisdiction over this interlocutory appeal.

Generally, negligence claims are limited to recoveries for physical injuries or property damage; purely economic losses are not recoverable unless there is personal injury, physical damage to property, a "special relationship," or another common law exception. The district court found no personal injury or evidence of property damage beyond the product itself, concluding economic loss was not recoverable. The court's analysis did not support a claim of damage to property other than the modified aircraft, and thus, economic loss was not recoverable under product liability principles.

However, the court erred in applying the J’Aire special relationship analysis, leading to a decision to reverse the district court's ruling on Kalitta’s negligence claim.

The California Supreme Court utilizes a six-factor “special relationship” analysis to assess whether a plaintiff, lacking privity with a defendant, can recover purely economic losses in negligence claims. This analysis includes: (1) the intent of the transaction to affect the plaintiff, (2) foreseeability of harm, (3) certainty of injury, (4) the connection between the defendant’s conduct and the injury, (5) moral blame associated with the conduct, and (6) the policy of preventing future harm. The district court incorrectly applied this analysis by misinterpreting that the degree of certainty of injury constitutes an exception to the economic loss rule, which is not supported by the California Supreme Court's precedents. Instead, this factor is one of the six required to establish a special relationship. The district court also limited the scope of Kalitta’s injury to physical damage or out-of-pocket losses, contrary to the broader considerations established in J’Aire and Aas, which included economic losses like lost profits. The court emphasized that appreciable, nonspeculative, present injury is crucial for tort claims. Thus, the district court's narrow interpretation hindered a proper evaluation of Kalitta’s injury. On remand, the district court must evaluate all six J’Aire factors comprehensively, without restricting the definition of injury.

The district court is instructed to consider all admissible evidence of "appreciable, nonspeculative, present injury," including business and profit losses, when applying the J’Aire framework. If a "special relationship" exists between Kalitta and Texas Airborne, the economic loss rule will not prevent recovery for purely economic losses. Kalitta contends that the California economic loss rule should not apply to negligence claims arising from service contracts, referencing North American Chemical Co. v. Superior Court. However, the court does not decide this issue as it is not critical for the case. Regardless of whether the economic loss rule applies, the district court must apply the six J’Aire criteria to allow recovery for economic losses from negligent contract performance. J’Aire provides a limited exception to the general rule that economic loss alone cannot establish a negligence cause of action. The court confirms that Kalitta's negligence claim will not be barred by the economic loss rule if the special relationship test is satisfied. Additionally, the court affirms the district court's denial of Texas Airborne’s motion for judgment as a matter of law (JMOL) regarding Kalitta’s negligent misrepresentation claim, classifying it as a form of fraud where economic losses are recoverable. The district court's misapplication of the J’Aire "special relationship" analysis necessitates reversing and remanding the negligence claim for further proceedings, while affirming the denial of JMOL on the misrepresentation claim. Each party will bear its own costs, with the disposition not intended for publication or precedent.