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Click here for the full text of this decision FACTS:In 1975, the predecessor company to Equistar Chemicals installed two impellers -� rotors around which spin 17 blades �- in the gas compressors used to make chemicals used in the production of antifreeze and plastic. The compressors and impellers were intended to run constantly at high rates of speed for many years, which they did. To boost production, the predecessor company replaced the impellers with larger ones. Like the old impellers, the larger impellers were purchased from Dresser-Rand. In 1991, 1993 and 1995, parts of the impellers broke off, damaging and shutting down the compressors. To address possible causes of the problem, impellers of the original size were installed in 1996; however, in order to maintain the higher production level of the large impellers, the smaller impellers were run at higher operating speeds. The smaller impellers failed twice in 1999. Equistar filed suit against Dresser-Rand in 2000 for $40 million for the damage to the impeller and the resultant economic loss from the reduced production. The trial court denied Dresser-Rand’s summary judgment motion, which was based on limitations, and the case went to trial, where a jury found Dresser-Rand 80 percent at fault on both tort and breach of warranty of fitness theories. The jury awarded Equistar $3.6 million. Dresser-Rand again raises the limitations issue on appeal. HOLDING:Reversed. The court explains that Equistar’s tort claims � the product-liability actions asserting negligence and strict liability � are governed by a limitations period two years from the date of the injury. The contract claims Equistar brought � for breach of implied warranty of fitness � is governed by a four-year period from the date of sale, regardless of when the buyer learns of the breach. The court further explains that Texas law does not allow the option of pursuing both tort and contract claims in these circumstances and the court must decide which cause of action, and thus, which statute of limitations, applies. Citing Nobility Homes of Tex. Inc. v. Shivers, 557 S.W.2d 77 (Tex. 1977), the court notes that in “transactions between commercial buyers and sellers, if damage occurs only to the product that passed between them, the claim is one for economic loss and must be brought on the parties’ contract; conversely, if there is physical injury to persons or ‘other property’ (that is, property other than the product itself), those claims may be brought in tort.” Almost all the damages claimed by Equistar stem from damage to the compressor themselves, the court concludes. Assuming the compressors are the product, any claim for damage to them had to be brought in contract or warranty by 1979, four years after the original sale. The court rejects Equistar’s argument that the impellers are the product and the compressors are “other property.” The impeller is a component part of the compressor subject to the economic loss rule sounding in contract. The court further rejects Equistar’s argument that the impellers that failed in 1999 were not original components, but replacements to units bought by the predecessor company in 1988 and 1991. The court notes that Texas has not addressed whether the economic loss rule applies in the context of replacement parts, but sides with the courts that have said the rule should apply. The court gives four reasons for its decision: 1. the Texas Supreme Court adopted the economic loss rule for the same reasons as the U.S. Supreme Court did; 2. replacing one defective part with another is not a new injury; 3. applying a different rule would defeat the purpose of the rule; and 4. Texas law already provides that a seller’s efforts to repair or replace defective parts does not extend the limitations period for breach of warranty claims. The court notes that a portion of the $3.6 million was not for damage to the compressors, but for damage to nearby equipment. That equipment is “other property,” and so can still be pursued under tort law, but the court rejects Equistar’s argument that this minor damage to “other property,” no matter how small, should suffice for brining all claims under tort law. OPINION:Brister, C.J.

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