��

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 09-1225

THE TRAVELERS INDEMNITY COMPANY

DAMMANN & CO., INC. and

INTERNATIONAL FLAVORS & FRAGRANCES INC.

DAMMANN & CO., INC.

COOPERATIVE BUSINESS INTERNATIONAL, INC.

and NATIONWIDE MUTUAL INSURANCE COMPANY

International Flavors & Fragrances Inc.,

Appellant

On Appeal from the United States District Court

for the District of New Jersey

(D.C. No. 04-cv-05699)

District Judge: Honorable Dickinson R. Debevoise

Argued December 2, 2009

Before: FISHER, HARDIMAN and

STAPLETON, Circuit Judges.

(Filed:February 5, 2010)

Robert G. Rose (Argued)
Day Pitney
P.O. Box 1945
Morristown, NJ 07962

Counsel for Appellant, International
Flavors & Fragrances Inc.

Frank E. Borowsky, Jr. (Argued)
Michael J. Frantz, Jr.
Borowsky & Borowsky
59 Avenue at the Common
Suites 101 & 102
Shrewsbury, NJ 07702

Counsel for Appellee, The
Travelers Indemnity Company

Peter M. Bouton
William H. Mergner, Jr. (Argued)
Leary, Bride, Tinker & Moran
7 Ridgedale Avenue
Cedar Knolls, NJ 07927

Counsel for Appellee, Dammann & Co.

George A. Prutting, Jr. (Argued)
Prutting & Lombardi
701 White Horse Pike
Audubon, NJ 08106

Counsel for Third Party Appellee,
Cooperative Business International, Inc.

Richard D. Millet
Richard D. Millet & Associates
1065 Route 22 West, Suite 1A
Bridgewater, NJ 08807

Counsel for Third Party Appellee,
Nationwide Mutual Ins. Co.

OPINION OF THE COURT

FISHER, Circuit Judge.

The Travelers Indemnity Company sought a declaration

in federal court that it was not obligated to cover any claims
asserted against its insured, Dammann & Co., Inc., by
International Flavors & Fragrances Inc. (“IFF”). More than
three years after Travelers initiated this lawsuit, IFF sought
leave to assert various crossclaims against Dammann. The
District Court denied that request on futility grounds, concluding
that the proposed crossclaims either were time-barred or failed
to state a claim. IFF now appeals the District Court’s denial of
its request. Seeing no abuse of discretion in the District Court’s
ruling, we will affirm.

Dammann is a producer of raw foods, including vanilla

beans. IFF manufactures, among other things, food and
beverage flavoring, including vanilla extract. Dammann agreed,
via a written contract, to sell vanilla beans to IFF and delivered
shipments in January 2004. IFF incorporated those beans into
its vanilla extract, which it later sold to several of its customers.
In February 2004, IFF learned that some of the beans may have
contained mercury. Subsequent tests confirmed as much. In
May 2004, IFF sent a letter to Dammann claiming more than
five million dollars in damages in connection with the
contaminated beans. Dammann thereafter sought coverage from
Travelers, its insurer, for liability arising out of IFF’s claim.

In November 2004, Travelers commenced this action by

filing a one-count complaint against Dammann and IFF in the
United States District Court for the District of New Jersey.
Travelers sought a declaration that the insurance policy it had
sold to Dammann did not cover IFF’s damages claim.
Dammann subsequently filed a counterclaim against Travelers,
seeking a declaration that Travelers was obligated to cover IFF’s
claim and asserting additional claims for breach of contract,
breach of fiduciary duty, and breach of the duty of good faith
and fair dealing. Dammann also filed a thirty-party complaint
against Cooperative Business International, Inc. (“CBI”), and
CBI’s insurer, Nationwide Mutual Insurance Company. In its
third-party complaint, Dammann alleged it had bought the
contaminated beans from CBI and sought indemnification from
CBI – or from Nationwide – for any liability Dammann might
incur as a result of IFF’s claim.

After the defendants filed oppositions to IFF’s motion,

IFF filed a reply brief stating that it was “agreeable” to
withdrawing its proposed crossclaims for breach of express and
implied warranties. (App. 207.) Judge Shipp denied IFF’s
motion notwithstanding IFF’s indication of willingness to
withdraw its breach of warranty crossclaims.

In June 2007, Travelers moved for summary judgment on

its declaratory judgment claim. The District Court denied that
motion, concluding that a portion of IFF’s claim was covered by
Dammann’s insurance policy with Travelers and that another
portion was potentially covered by the policy.

In February 2008, IFF sought leave to file crossclaims for

breach of express warranty, breach of implied warranty, and
product liability against Dammann. Dammann and CBI both
opposed the motion. In August 2008, Magistrate Judge Shipp
denied IFF’s motion. Judge Shipp noted that IFF’s February

2008 request came more than four years after its January 2004
receipt of the beans but less than four years after its February
2004 discovery of the contamination. The Uniform Commercial
Code (“U.C.C.”), which Judge Shipp determined was
applicable, imposes a four-year statute of limitations, see U.C.C.
§ 2-725(1), and provides that a cause of action accrues at the
time of the breach except where a warranty expressly extends to
future performance, id. §§ 2-725(2)(a), (3)(c). Judge Shipp
concluded there was no such express extension in IFF’s contract
with Dammann and that, as a consequence, IFF’s breach of
warranty crossclaims were untimely. With respect to IFF’s
product liability crossclaim, Judge Shipp reasoned that it was

barred by the economic loss doctrine. Judge Shipp also found
that IFF had exhibited undue delay in seeking leave to file
crossclaims. For all these reasons, Judge Shipp denied IFF’s
motion.

IFF appealed Judge Shipp’s ruling to the District Court.

Before the District Court disposed of that appeal, IFF filed a
brief “in further support” of its appeal. In that supplemental
brief, IFF reiterated its challenge to Judge Shipp’s ruling and
sought permission to assert not only the breach of express
warranty, breach of implied warranty, and product liability
crossclaims it had previously sought to assert, but also express
indemnification and implied indemnification crossclaims, all
against Dammann.

In October 2008, Travelers and Dammann stipulated to

the dismissal of each other’s claims.

In November 2008, the District Court held a hearing on

IFF’s appeal of Judge Shipp’s ruling and its request to file
additional crossclaims. In December 2008, the District Court
rejected IFF’s appeal and denied its request to assert any
crossclaims, concluding they were futile because they were
either time-barred or insufficiently pled. Travelers Indem. Co.
v. Dammann & Co., Inc., 592 F. Supp. 2d 752 (D.N.J. 2008).
The District Court did not address Judge Shipp’s finding that
IFF had unduly delayed in seeking leave to assert crossclaims.

This timely appeal followed. On appeal, IFF argues that

it should have been permitted to proceed on its product liability
as well as express and implied indemnification crossclaims. IFF

After this appeal was docketed, the Clerk of this Court

advised the parties that this appeal was subject to possible
dismissal on the ground that the District Court’s order denying
IFF’s request for leave to assert crossclaims was not a final
order within the meaning of 28 U.S.C. § 1291. In response, IFF
submitted a letter stating that the District Court, following the
filing of the notice of appeal, had entered an order stating that its
ruling on IFF’s request for leave to file crossclaims “was a final
order for purposes of appeal, and that all remaining claims,
counterclaims and cross-claims in this matter are rendered
moot[.]” Travelers, Dammann and Nationwide have all
submitted separate letters concurring that there are no issues
pending before the District Court. Having considered the matter
independently, see Arbaugh v. Y & H Corp., 546 U.S. 500, 514
(2006) (noting that “courts . . . have an independent obligation
to determine whether subject-matter jurisdiction exists”), we
perceive no impediment to this Court’s exercise of jurisdiction.

does not challenge the District Court’s denial of its request to
assert breach of express and implied warranty crossclaims.

II.

The District Court had jurisdiction under 28 U.S.C.

§ 1332. We have jurisdiction under 28 U.S.C. § 1291. We

review a district court’s denial of a request for leave to file new
claims for abuse of discretion. See Winer Family Trust v.

IFF asserts in its opening brief that we should exercise

plenary review over the District Court’s denial of its request,
and is not the first litigant to do so in this Court. See, e.g.,
Bjorgung v. Whitetail Resort, LP, 550 F.3d 263, 266 n.3 (3d Cir.
2008) (“Bjorgung appears to argue, incorrectly, that [the
decision refusing leave to amend] is subject to de novo review.”
(first emphasis supplied)). The cases IFF cites do not stand for
that proposition. We have unwaveringly applied an abuse-of-
discretion standard to the denial of a request for leave to amend
a pleading. See, e.g., Metcalfe v. Renaissance Marine, Inc., 566
F.3d 324, 337 (3d Cir. 2009); Kanter v. Barella, 489 F.3d 170,
181-182 (3d Cir. 2007). In fact, we have rejected the very
proposition that IFF now appears to press:

Plaintiffs contend that the applicable standard of
review of futility determinations is de novo,
relying upon our decision in [In re Burlington
Coat Factory Securities Litigation, 114 F.3d 1410
(3d Cir. 1997)], as adopting the standard
employed by several of our sister courts of
appeals, but we do need read Burlington as having
done so. . . . Accordingly, we decline the
plaintiffs’ invitation to chart a new course and
consider the District Court’s finding of futility for
abuse of discretion.

In re Adams Golf, Inc. Sec. Litig., 381 F.3d 267, 281 n.13 (3d
Cir. 2004).

Queen, 503 F.3d 319, 325 (3d Cir. 2007). “‘Futility’ means

that the complaint, as amended, would fail to state a claim upon
which relief could be granted.” In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997) (citation
omitted). In determining whether a claim would be futile, “the
district court applies the same standard of legal sufficiency as
applies under [Federal] Rule [of Civil Procedure] 12(b)(6).” Id.
(citation omitted). “[I]f a district court concludes that an
amendment is futile based upon its erroneous view of the law,
it abuses its discretion.” Abbott v. Latshaw, 164 F.3d 141, 149
(3d Cir. 1998) (quotation marks and citation omitted); see also
Smith v. NCAA, 139 F.3d 180, 190 (3d Cir. 1998) (“If a district
court concludes that an amendment is futile based upon its
erroneous view of the law, it abuses its discretion in denying a
plaintiff leave to amend to include a legally sufficient
allegation.” (citation omitted)), vacated on other grounds, 525
U.S. 459 (1999).

III.

IFF’s Proposed Product Liability Crossclaim

IFF argues that the District Court erred in denying its

request to assert a product liability crossclaim. The District
Court agreed with Judge Shipp that IFF’s crossclaim sounded in
contract and thus was governed by the U.C.C. and its four-year
statute of limitations. The Court rejected IFF’s contention that
its crossclaim sounded in tort and was therefore governed by the
New Jersey Product Liability Act (“NJPLA”), N.J. Stat. Ann.
§ 2A:58C-1 et seq., and New Jersey’s accompanying six-year
statute of limitations for tort claims. See N.J. Stat. Ann.

The parties agree that New Jersey law governs this case.

The New Jersey Legislature enacted the NJPLA in light

of its finding that “there is an urgent need for remedial
legislation to establish clear rules with respect to certain matters
relating to actions for damages for harm caused by products,
including certain principles under which liability is imposed and
the standards and procedures for the award of punitive
damages.” N.J. Stat. Ann. § 2A:58C-1(a). Notwithstanding the
Legislature’s objective, as we shall see, the statute in fact
obscures more than it elucidates, especially when juxtaposed
with other elements of New Jersey law.

§ 2A:14-1. In making these determinations, the District Court

reviewed New Jersey’s economic loss doctrine. While
recognizing that New Jersey law was unsettled on this point, the
District Court, after surveying the law in other jurisdictions,
predicted that the Supreme Court of New Jersey would interpret
that doctrine to bar tort claims where a plaintiff seeks economic
damages for foreseeable losses for which the plaintiff could
have contractually allocated risk. Concluding that IFF was just
such a plaintiff, the District Court reasoned that the economic
loss doctrine barred application of the NJPLA in this case.

Under the NJPLA, “[a] manufacturer or seller of a

product shall be liable in a product liability action only if the
claimant proves by a preponderance of the evidence that the
product causing the harm was not reasonably fit, suitable or safe
for its intended purpose[.]” N.J. Stat. Ann. § 2A:58C-2. The

statute defines “harm,” in pertinent part, as “physical damage to

property, other than to the product itself[.]”  N.J. Stat. Ann.
§ 2A:58C-1(b)(2)(a).  While the NJPLA defines “harm,” it does
not explain the meaning of “physical damage to property, other
than to the product itself.”  No New Jersey court has delineated
the contours of “the product itself” and “other property” as
contemplated by the NJPLA.

Under New Jersey law, the economic loss doctrine

“defines the boundary between the overlapping theories of tort
law and contract law by barring the recovery of purely economic
loss in tort, particularly in strict liability and negligence cases.”
Dean v. Barrett Homes, Inc., 968 A.2d 192, 202 (N.J. Super. Ct.
App. Div. 2009) (quotation marks and citation omitted), cert.
granted, 976 A.2d 384 (N.J. 2009). “The purpose of the rule is
to strike an equitable balance between countervailing public
policies[] that exist in tort and contracts law.” Id. (internal
quotation marks and citation omitted).

Neither the Supreme Court of New Jersey nor any other

New Jersey court has directly clarified the interaction between
the NJPLA and the economic loss doctrine. In other words, no
New Jersey case specifically says whether the sort of claim IFF
alleges here is governed by contract or tort principles. As a
consequence, we must predict how the New Jersey Supreme
Court would resolve this case. See Hunt v. United States
Tobacco Co., 538 F.3d 217, 220 (3d Cir. 2008) (“[I]n the
absence of any clear precedent of the state’s highest court, we
must predict how that court would resolve the issue.” (quotation
marks, other alteration and citation omitted)). “In making such
a prediction, we . . . consider relevant state precedents,
analogous decisions, considered dicta, scholarly works, and any

other reliable data tending convincingly to show how the highest
court in the state would resolve the issue at hand.” Id. at 221.
(quotation marks and citation omitted). Furthermore, in the
absence of direct authority from the New Jersey Supreme Court,
we may treat as persuasive authority decisions of the Appellate
Division of the Superior Court of New Jersey. See Edwards v.
HOVENSA, LLC, 497 F.3d 355, 361 (3d Cir. 2007) (“[A]n
intermediate appellate state court is a datum for ascertaining
state law which is not to be disregarded by a federal court unless
it is convinced by other persuasive data that the highest court of
the state would decide otherwise.” (quotation marks and ellipsis
omitted) (quoting West v. AT&T Co., 311 U.S. 223, 237 (1940)).

The New Jersey courts have long recognized that while

“[a] tort action is separate and distinct from a contract action[,]”
Huck v. Gabriel Realty, 346 A.2d 628, 632 (N.J. Super. Ct. Law
Div. 1975) (citation omitted), “[t]he boundary line between tort
and contract actions is not capable of clear demarcation.” New
Mea Constr. Corp. v. Harper, 497 A.2d 534, 538 (N.J. Super.
Ct. App. Div. 1985), cited with approval in Saltiel v. GSI
Consultants, Inc., 788 A.2d 268, 276 (N.J. 2002). The interplay
between tort and contract law in New Jersey has undergone
significant changes over the last several decades. In Santor v.
A & M Karagheusian, Inc., 207 A.2d 305 (N.J. 1965), the New
Jersey Supreme Court held that a purchaser could maintain a
strict liability claim seeking economic loss against the
manufacturer of a defective product. The Court acknowledged
that its holding implicitly allowed tort law to invade what had
previously been exclusively contractual territory, but reasoned
that a consumer would otherwise have no remedy in contract
against a manufacturer with which he was not in privity. Thus,

The Spring Motors Court took stock of the wave of

criticism leveled at the Santor ruling by both courts and
commentators. See Spring Motors, 489 A.2d at 669-70; see also
Alloway v. Gen. Marine Indus., 695 A.2d 264, 269 (N.J. 1997)
(calling Santor an “unprecedented result”). Despite that
criticism, the Spring Motors Court did not overrule Santor to the
extent it held that a “consumer may recover in strict liability for
direct economic loss.” Spring Motors, 489 A.2d at 670
(emphasis added). Slightly more than one year after Spring
Motors, the United States Supreme Court expressly disapproved
Santor, describing it as a “minority view [that] fails to account
for the need to keep products liability and contract law in
separate spheres and to maintain a realistic limitation on
damages.” E. River S.S. Corp. v. Transamerica Delaval, Inc.,
476 U.S. 858, 870-71 (1986). Santor’s vitality is highly
questionable post-East River. See Paramount Aviation Corp. v.
Gruppo Agusta, 288 F.3d 67, 77 (3d Cir. 2002).

the Court concluded that allowing the consumer to bring an
action in tort would supply a remedy where contract law
provided none.

Two decades later, the New Jersey Supreme Court

rejected the rationale of Santor, at least in the commercial, as
opposed to consumer, context, in Spring Motors Distributors,
Inc. v. Ford Motor Company, 489 A.2d 660 (N.J. 1985), where
a purchaser of trucks sued the dealer and the manufacturer of the
trucks as well as the supplier of the transmissions after the
trucks failed to operate properly because of defects in the
transmissions. The Court held, among other things, that the

purchaser could not assert a strict liability claim against the
manufacturer or the supplier for economic loss. See id. at 663
(“[A] commercial buyer seeking damages for economic loss
resulting from the purchase of defective goods may recover
from an immediate seller and a remote supplier in a distributive
chain for breach of warranty under the U.C.C., but not in strict
liability or negligence.”). The Court noted that, “[a]s a general
rule, the rights and duties of a buyer and seller are determined by
. . . the U.C.C.[,]” while “strict liability evolved as a judicial
response to inadequacies in sales law with respect to consumers
who sustained physical injuries from defective goods made or
distributed by remote parties in the marketing chain.” Id. at 670.
Explaining that “[t]he considerations that give rise to strict
liability do not obtain between commercial parties with
comparable bargaining power” and that “a commercial buyer . . .
may be better situated than the manufacturer to factor into its
price the risk of economic loss caused by the purchase of a
defective product[,]” the Court concluded that, “[a]s between
commercial parties, . . . the allocation of risks in accordance
with their agreement better serves the public interest than an
allocation achieved as a matter of policy without reference to
that agreement.” Id. at 670-71. In reaching that conclusion, the
Court “turn[ed] to the structure and purpose of the [U.C.C.],
which[,]” it observed, “constitutes a comprehensive system for
determining the rights and duties of buyers and sellers with
respect to contracts for the sale of goods.” Id. at 665 (citation
omitted). That structure and purpose, the Court reasoned,
reflected

the principle that parties should be free to make
contracts of their choice, including contracts

disclaiming liability for breach of warranty. Once
they reach such an agreement, society has an
interest in seeing that the agreement is fulfilled.
Consequently, the U.C.C. is the more appropriate
vehicle for resolving commercial disputes arising
out of business transactions between persons in a
distributive chain.

Id. at 668. In the New Jersey Supreme Court’s view, allowing
the truck purchaser to sue in tort would “would dislocate major
provisions of the [U.C.C.]” by “obviat[ing] the statutory
requirement that a buyer give notice of a breach of warranty”
and “depriv[ing] the seller of the ability to exclude or limit its
liability[.]” Id. at 671 (citations omitted). “In sum,” the Court
wrote, “the U.C.C. represents a comprehensive statutory scheme
that satisfies the needs of the world of commerce, and courts
should pause before extending judicial doctrines that might
dislocate the legislative structure.” Id.

The New Jersey Supreme Court revisited and expanded

on these principles more than two decades later in Alloway v.
General Marine Industries, 695 A.2d 264 (N.J. 1997), where a
non-commercial purchaser of a faulty boat sued the dealer and
the manufacturer for economic loss. The Court explained that
while “tort principles are better suited to resolve claims for
personal injuries or damage to other property[,] . . . [c]ontract
principles more readily respond to claims for economic loss
caused by damage to the product itself.” Id. at 267-68 (citations
omitted). Put another way, “[t]ort principles more adequately
address the creation of an unreasonable risk of harm when a
person or other property sustains accidental or unexpected

In Goldson v. Carver Boat Corporation, 707 A.2d 193

(N.J. Super. Ct. App. Div. 1998), the Appellate Division

injury[,]” while “contract principles, particularly as implemented
by the U.C.C., provide a more appropriate analytical
framework” where “a product fails to fulfill a purchaser’s
economic expectations[.]” Id. at 268 (citations omitted).
“Implicit in the distinction[,]” the Court observed, “is the
doctrine that a tort duty of care protects against the risk of
accidental harm and a contractual duty preserves the satisfaction
of consensual obligations.” Id. (citations omitted). Also
relevant to the distinction between contract and tort, the Alloway
Court said, “are the relative bargaining power of the parties and
the allocation of the loss to the better risk-bearer in a modern
marketing system.” Id. (internal quotation marks and citations
omitted). The Court was likewise concerned with respecting
legislative commands. By enacting the U.C.C. into New Jersey
law, “the [New Jersey] Legislature adopted a comprehensive
system for compensating consumers for economic loss arising
from the purchase of defective products.” Id. (citations
omitted). Importantly, the Court wrote, reiterating its statements
in Spring Motors, the U.C.C., which provides a broad panoply
of contractual protections, must be liberally construed so as
“promote [its] underlying purposes and policies.” Id. at 269
(citation omitted). Finding that the purchaser of the boat had
“insured against the risk that gave rise to his economic loss” by
contractually protecting itself and noting “the unfairness of
imposing on a seller tort liability for economic loss[,]” the Court
held that the purchaser’s tort claims were barred by the
economic loss doctrine. Id. at 275.

affirmed the dismissal of product liability and negligence claims
against the seller of a luxury yacht and against a company that
had installed the yacht’s engine, echoing the Spring Motors and
Alloway Courts’ pronouncements while reasoning as follows:

Product liability grew out of a public policy
judgment that people need more protection from
dangerous products than may be afforded by the
law of contracts and warranties. The traditional
contract is the result of free bargaining of parties
who are brought together by the play of the
market, and who meet each other on a footing of
approximate economic equality. But other
concerns exist where the buyer has no real
freedom of choice and the manufacturer uses its
grossly disproportionate bargaining power to
introduce into the stream of commerce an
instrumentality that, because of its defective
design or construction, poses a grave danger of
injury to other persons or property.

Id. at 199-200 (internal quotation marks and citations omitted).
Based on these principles, the Goldson Court concluded that
“where, as here, the consumer is not at a genuine commercial
disadvantage, there is greater reason to allow allocation of the
loss caused by a defective product to reflect the interplay of
forces in the marketplace,” and that, “[i]n such a case, the
parties are able to allocate among themselves both the benefits
and risks that inhere in their mutual promises.” Id. at 200;

accord Dean, 968 A.2d at 203 (“[T]he policy behind contract
law operates on the premise that contracting parties, in the
course of bargaining for terms of a sale, are able to allocate risks
and costs of the potential nonperformance. The underlying
assumption is that the contract is the result of an arms-length
negotiated transaction.” (internal quotation marks and citation
omitted)); Marrone v. Greer & Polman Constr., Inc., 964 A.2d
330, 339-40 (N.J. Super. Ct. App. Div. 2009).

Although Spring Motors and Alloway plainly disfavor the

application of tort law in what is an otherwise clearly
contractual context, neither case addresses the circumstance
where, as here, a buyer has entered into a contract – which
includes contractual protection in the form of indemnification
and warranty clauses – with a seller of an allegedly defective
product that causes damage not only to the product itself but to
something other than the product itself. Here, the product itself
is the vanilla beans IFF bought from Dammann. The “other
property” that was allegedly damaged is IFF’s other flavoring
products it mixed with the contaminated beans as well as the
machinery it used to manufacture vanilla extract.

We cannot help but note, as we analyze this case, what

appears to be a tension between the economic loss doctrine and
the NJPLA. Specifically, the economic loss doctrine precludes
tort claims for purely economic loss without reference to
whether the loss stems from damage to “the product itself” or
“other property.” At the same time, the NJPLA clearly permits
a plaintiff to pursue a tort remedy in the event of harm to “other
property” without reference to New Jersey’s preference for

keeping tort out of contract’s hair. The New Jersey Supreme
Court has not had occasion to harmonize that apparent tension,
see, e.g., Alloway, 695 A.2d at 273 (declining to resolve the
issue “whether the U.C.C. or tort law should apply when a
defective product poses a serious risk to other property or
persons, but has caused only economic loss to the product
itself”); see also id. at 267 (noting that the plaintiffs “do not
allege that other property was damaged”), and no other New
Jersey court has done so either. Given the lack of a clear
directive, “[o]ur function is to look, as best we can, into the
minds of the members of the [New Jersey] Supreme Court, and
to ascertain their likely disposition of this case.” Kramer v.
Thompson, 947 F.2d 666, 677 (3d Cir. 1991). Although this
prediction is not an easy one, see Yohannon v. Keene Corp., 924
F.2d 1255, 1264 (3d Cir. 1991) (noting “[t]he inherently
difficult task of predicting what a state supreme court will do
when the state’s decisional law is unclear on the point at issue”),
we do not write on an entirely blank slate. Based on the
available case law in New Jersey, we are convinced that the
New Jersey Supreme Court would not permit IFF to pursue its
product liability claim under the circumstances presented here.

While we have recognized that “[t]he New Jersey

Supreme Court has long been a leader in expanding tort
liability[,]” Hakimoglu v. Trump Taj Mahal Assocs., 70 F.3d
291, 295 (3d Cir. 1995), we have also read Spring and Alloway
as reflective of New Jersey’s strong resistance to the usurpation
of contract law by tort law:

Spring Motors and Alloway reflect a deference to
legislative will where the legislature has provided

a comprehensive scheme controlling the
relationship between the parties and, more
specifically, a recognition of the importance of
the allocation of risk of economic loss against the
background of the rights and remedies provided
by the U.C.C. . . . [A]s far as parties (whether
commercial or non-commercial) within the
distribution chain of goods are concerned, the
U.C.C. alone controls the liability of a seller of
goods for economic loss arising as a result of a
defect in those goods; there is, accordingly, no
liability in a tort action whether it be one asserting
strict liability or negligence.

Paramount Aviation Corp. v. Gruppo Agusta, 288 F.3d 67, 73
(3d Cir. 2002). Indeed, these principles are at the very root of
the economic loss doctrine. See Werwinski v. Ford Motor Co.,
286 F.3d 661, 680 (3d Cir. 2002) (Pennsylvania law); Cooper
Power Sys., Inc. v. Union Carbide Chems. & Plastics Co., Inc.,
123 F.3d 675, 681-82 (7th Cir. 1997) (Wisconsin law). In
keeping with the purpose of the economic loss doctrine, New
Jersey courts have consistently held that contract law is better
suited to resolve disputes between parties where a plaintiff
alleges direct and consequential losses that were within the
contemplation of sophisticated business entities with equal
bargaining power and that could have been the subject of their
negotiations. See Alloway, 695 A.2d at 268, 275; Spring
Motors, 489 A.2d at 666, 670-71; Dean, 968 A.2d at 203-04;
Menorah Chapels at Millburn v. Needle, 899 A.2d 316, 323-25
(N.J. Super. Ct. App. Div. 2006); Goldson, 707 A.2d at 200.

Here, the record is bereft of any indication that IFF and

Dammann are anything other than sophisticated players on equal
footing. Cf. Alloway, 695 A.2d at 268 (noting that “nothing
indicates that Alloway was at a disadvantage when bargaining
for the purchase of the boat”). Furthermore, the damages IFF
alleges in its proposed product liability crossclaim include: the
scrapping of contaminated finished flavoring products; claims
from customers who bought those products; testing costs; plant
cleaning costs; internal labor and administrative costs; and lost
profits. (App. 303.) In Alloway, the New Jersey Supreme Court
observed that “economic loss encompasses actions for the
recovery of damages for costs of repair, replacement of
defective goods, inadequate value, and consequential loss of
profits” as well as “the diminution in value of the product
because it is inferior in quality and does not work for the general
purposes for which it was manufactured and sold.” 695 A.2d at
267 (quotation marks and citations omitted). Significantly,
IFF’s alleged damages fall squarely within the ambit of
economic losses the Alloway Court described and that are
generally regarded as both direct and consequential damages
recoverable in contract. See Spring Motors, 489 A.2d at 665
(“A direct economic loss includes the loss of the benefit of the
bargain, i.e., the difference between the value of the product as
represented and its value in its defective condition.
Consequential economic loss includes . . . indirect losses[.]”
(citation omitted)); see also 24 Richard A. Lord, Williston on
Contracts § 64:12 (4th ed. 2002) (defining general damages as
“damages that would follow any breach of similar character in
the usual course of events” and consequential damages as
“damages that . . . were reasonably foreseeable or contemplated
by the parties at the time the contract was entered into as a

probable result of a breach”). In fact, those damages are
precisely the sort the U.C.C., as incorporated into New Jersey
law, authorizes a buyer to recoup when a seller breaches a
contract by selling a defective product. See N.J. Stat. Ann.
§ 12A:2-715 (defining incidental damages as, among other
things, “any commercially reasonable charges, expenses or
commissions in connection with effecting cover and any other
reasonable expense incident to the delay or other breach” and
consequential damages as “any loss resulting from general or
particular requirements and needs of which the seller at the time
of contracting had reason to know and which could not
reasonably be prevented by cover or otherwise[.]” (emphasis
supplied)).

To allow IFF to pursue tort remedies for its alleged

damages – damages for which the U.C.C. permits recovery and
for which IFF could have contractually shielded itself – would
effectively authorize duplicative recovery, a result the New
Jersey Supreme Court has specifically criticized. See Alloway,
695 A.2d at 275 (“[A] tort cause of action for economic loss
duplicating the one provided by the U.C.C. is superfluous and
counterproductive.”). Moreover, “the U.C.C.’s underlying
purposes and policies[,]” id. at 269, militate against the
availability of a tort remedy for IFF’s product liability claim.
The availability of a tort remedy in a case such as this would
encourage buyers like IFF to forgo contractual protection in
exchange for a lesser purchase price. Such an approach would
yield results that conflict with the economic loss doctrine’s very
purpose, as recognized in New Jersey jurisprudence. See, e.g.,
id. at 270 (“Allowing recovery for all foreseeable damages in
claims seeking purely economic loss, could subject a

manufacturer to liability for vast sums arising from the
expectations of parties downstream in the chain of distribution.”
(citation omitted)); Dean, 968 A.2d at 203 (“By refusing to
extricate parties from the bargains that they have struck, the
economic loss rule encourages parties to consider the possibility
that the product will not perform properly and either assign risk
or negotiate the price accordingly.” (quotation marks, alteration
and citation omitted)). Such an outcome would also be
particularly anomalous where, as here, the parties did in fact
include such protection in their contract in the form of
indemnification and warranty clauses, thus evidencing their
ability to negotiate and to provide for the allocation of risk and
the limitation of liability. Cf. Alloway, 695 A.2d at 269 (listing
the various ways in which buyers and sellers may allocate risk
and limit their liability under the U.C.C.); see also id. at 268
(noting that “Alloway prudently protected himself against the
risk of loss by obtaining an insurance policy that distributed that
risk to his insurer”). In sum, based on the trend in New Jersey
jurisprudence, starting with Santor and followed by Spring
Motors and Alloway, as well as the nature of the damages IFF
alleges to have suffered, we predict that the New Jersey
Supreme Court would bar IFF’s product liability crossclaim
under the economic loss doctrine.

We find support for our conclusion in the law of other

jurisdictions. Indeed, our reference to other jurisdictions for
guidance in the absence of clear authority in New Jersey law is
in harmony with the New Jersey Supreme Court’s own approach
under similar circumstances. See, e.g., Saltiel, 788 A.2d at 276-
77; Cox v. RKA Corp., 753 A.2d 1112, 1118-27 (N.J. 2000)
(considering other jurisdictions’ laws where there was “no

reported New Jersey case addressing the issue precisely”);
Thomas Group v. Wharton Senior Citizen Hous., Inc., 750 A.2d
743, 748-49 (N.J. 2000) (similar). We note as well that,
although perhaps not true in all instances, the New Jersey
Supreme Court has frequently adopted what it has regarded as
the majority rule among other jurisdictions when New Jersey
law has not furnished a clear rule of decision. See, e.g., State v.
Korecky, 777 A.2d 927, 933-34 (N.J. 2001); Saffer v.
Willoughby, 670 A.2d 527, 534 (N.J. 1996); State v. Haliski, 656
A.2d 1246, 1252 (N.J. 1995); Paul Revere Life Ins. Co. v. Haas,
644 A.2d 1098, 1105-06 (N.J. 1994); Bandel v. Friedrich, 584
A.2d 800, 802-03 (N.J. 1991); Kazmer-Standish Consultants,
Inc. v. Schoeffel Instruments Corp., 445 A.2d 1149, 1152-53
(N.J. 1982) (adopting and modifying the majority rule);
Tortorello v. Reinfeld, 77 A.2d 240, 243-44 (N.J. 1950); see
also, e.g., W9/PHC Real Estate LP v. Farm Family Cas. Ins.
Co., 970 A.2d 382, 397-98 (N.J. Super. Ct. App. Div. 2009);
Custom Commc’ns Eng’g, Inc. v. E.F. Johnson Co., 636 A.2d
80, 84 (N.J. Super. Ct. App. Div. 1993).

There exists a split of authority among other jurisdictions

regarding the meaning of “other property” in the context of the
economic loss doctrine. The majority of jurisdictions employ
some variation of a test under which “tort remedies are
unavailable for property damage experienced by the owner
where the damage was a foreseeable result of a defect at the
time the parties contractually determined their respective
exposure to risk, regardless whether the damage was to the
‘goods’ themselves or to ‘other property.’” Dakota Gasification
Co. v. Pascoe Bldg. Sys., 91 F.3d 1094, 1099 (8th Cir. 1996)
(predicting that North Dakota would adopt the modern trend);

see also Grams v. Milk Prods., Inc., 699 N.W.2d 167, 178 (Wis.
2005); In re Consol. Vista Hills Retaining Wall Litig., 893 P.2d
438, 446 (N.M. 1995); Neibarger v. Universal Coops. Inc., 486
N.W.2d 612, 620 (Mich. 1992); Hapka v. Paquin Farms, 458
N.W.2d 683, 688 (Minn. 1990); see also, e.g., Palmetto Linen
Serv., Inc. v. U.N.X., Inc., 205 F.3d 126, 129-30 (4th Cir. 2000)
(interpreting South Carolina law); Redman v. John D. Brush &
Co., 111 F.3d 1174, 1182-83 (4th Cir. 1997) (interpreting
Virginia law); see also Reeder R. Fox & Patrick J. Loftus,
Riding the Choppy Waters of East River: Economic Loss
Doctrine Ten Years Later, 64 Def. Counsel J. 260, 265 (1997)
(noting the “growing trend in many jurisdictions to interpret
‘economic loss’ broadly to include damage that formerly was
considered ‘other property’” (footnote omitted)). The minority
of jurisdictions have taken a different tack. See, e.g., Elite
Prof’ls, Inc. v. Carrier Corp., 827 P.2d 1195, 1202 (Kan. Ct.
App. 1992) (holding that a trucking company could recover in
tort for meat that spoiled when a refrigeration unit it had bought
from the defendant malfunctioned because the meat constituted
“harm to property other than the refrigeration unit itself”); Salt
River Project Agric. Improvement & Power Dist. v.
Westinghouse Elec. Corp., 694 P.2d 198, 208 (Ariz. 1984)
(holding that a plaintiff could pursue a strict liability tort claim
against the manufacturer of a device, installed in a previously
purchased turbine, that malfunctioned, causing the turbine to
catch fire and be destroyed).

The New Jersey Supreme Court’s clear rejection of an

approach that would allow tort law to substitute for contract law
in cases involving sophisticated parties with equal bargaining
power is strongly resonant of the rationale of those jurisdictions

espousing the majority rule. In Grams v. Milk Products, Inc.,
for instance, the Wisconsin Supreme Court rejected the
plaintiffs’ proposal to adopt “a new ‘bright line rule,’ that
physical damage to anything other than the product itself would
be considered damage to ‘other property’ and therefore subject
to suit in tort[.]” 699 N.W.2d at 178. The Wisconsin Supreme
Court noted the plaintiffs’ concession that their proposal would
permit tort suits “whenever damage extends beyond the physical
dimensions of the purchased product.” Id. The court declined
to adopt such a rule because it “would reject inquiry into the
scope of the bargain and replace it with an overly formalistic
distinction based on the kind of property harmed[,] . . . would
inevitably cause the erosion of the [U.C.C.,]” and would
undermine “[t]he fundamental distinction between contract and
tort[.]” (internal quotation marks omitted)). Similarly, in
Neibarger v. Universal Cooperatives, Inc., the Michigan
Supreme Court reasoned that

[t]he proper approach requires consideration of
the underlying policies of tort and contract law as
well as the nature of the damages. The essence of
a warranty action under the [U.C.C.] is that the
product was not of the quality expected by the
buyer or promised by the seller. The standard of
quality must be defined by the purpose of the
product, the uses for which it was intended, and
the agreement of the parties. In many cases,
failure of the product to perform as expected will
necessarily cause damage to other property; such
damage is often not beyond the contemplation of
the parties to the agreement. Damage to property,

It might be argued, of course, that a court is more at

liberty to work around a judicially-created doctrine than a
legislative act, which a court must do its utmost to respect and
enforce. Whatever the merit of that argument, it is not relevant
here, as we are not ignoring the NJPLA’s “other property”
exception. Instead, we seek to reconcile two seemingly

where it is the result of a commercial transaction
otherwise within the ambit of the [U.C.C.], should
not preclude application of the economic loss
doctrine where such property damage necessarily
results from the delivery of a product of poor
quality.

486 N.W.2d at 620 (footnotes omitted).

Although by no means dispositive of our inquiry on its

own, the fact that New Jersey courts have unequivocally stated
their opposition to tort law’s encroachment into the contractual
domain fortifies the proposition that the New Jersey Supreme
Court would endorse the view followed by the majority of
jurisdictions. We recognize, of course, that New Jersey has a
legislative mandate under the NJPLA to treat harm to “other
property” differently from harm to “the product itself,” while the
“other property” exception in many other jurisdictions is a
creature of judicial making. See, e.g.,  Moransais v. Heathman,
744 So. 2d 973, 979 (Fla. 1999).  We see no principled reason,
however, why a legislatively-created “other property” exception
should be interpreted any differently from its judicially-created
counterpart.   In short, the progression in New Jersey case law

conflicting strains of New Jersey law to the best of our ability
given all available, relevant data.

Our decision in In re Merritt Logan, Inc., 901 F.2d 349

(3d Cir. 1990), is not to the contrary. In that case, Merritt
Logan, a grocery store operator, sued the seller, installer and
manufacturer of a defective refrigeration system. We vacated a
jury verdict for Merritt Logan on its negligence claim, reasoning
that Merritt Logan, like the Spring Motors plaintiff, was
“seeking damages for economic loss resulting from its purchase
of a defective product.” Id. at 362. We rejected Merritt Logan’s
argument that it could nevertheless pursue its negligence claim
“because the defective refrigeration system caused damage to
other property, namely, food stocks.” Id. We concluded that
New Jersey, in light of Spring Motors, would restrict Merritt
Logan’s recovery to that available in contract. We noted that
“[i]f New Jersey followed the rule described in [East River
Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858

from Santor to Spring Motors and Alloway offers compelling
evidence that the New Jersey Supreme Court has plotted a
course straight for some adaptation of the majority view but
simply has not yet taken the final steps over the finish line. Cf.
McKenna v. Ortho Pharmaceutical Corp., 622 F.2d 657, 662
(3d Cir. 1980) (“[R]elevant state precedents must be scrutinized
with an eye toward the broad policies that informed those
adjudications, and to the doctrinal trends which they evince.”
(footnote omitted)). IFF has shown us no relevant legal
authority on the basis of which to conclude that New Jersey
would shun the majority rule.

(1986)], that an injured party may recover in tort when the
defective product causes damage to property other than the
product itself, Merritt Logan’s argument would be plausible.”
Id. at 362-63 (footnote and citation omitted). We stated our
belief that “Spring Motors rejects this rationale in the context of
actions between parties to contracts for the sale of goods in
favor of the U.C.C. rule permitting consequential damages,
including direct economic damage to other property, unless the
parties’ contract of sale excludes consequential damages.” Id.
at 363. Merritt Logan does not govern the outcome here. First,
our reference to East River was dictum and therefore does not
bind us. See, e.g., Curley v. Klem, 499 F.3d 199, 210 (3d Cir.
2007). Second, Merritt Logan did not consider the effect of the
NJPLA, which, significantly, expressly authorizes tort recovery
in the event of damage to “other property.” In other words,
Merritt Logan’s predictive task, unlike ours, entailed no analysis
of the relationship between the economic loss doctrine and the
NJPLA.

To support its view that the beans it bought from

Dammann constitute “the product itself” while the vanilla
extract and other flavoring products mixed with the beans to
make the extract constitute “other property,” IFF points us to a
series of cases from both the Supreme Court, see E. River S.S.
Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986);
Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875
(1997), and this Court, see Sea-Land Serv., Inc. v. Gen. Elec.
Co., 134 F.3d 149 (3d Cir. 1998); 2-J Corp. v. Tice, 126 F.3d
539 (3d Cir. 1997). We reject IFF’s reliance on these cases for
several reasons. First, none of those cases construes New Jersey

law, as we are bound to do in this case. (East River and
Saratoga were admiralty cases while Sea-Land and 2-J Corp.
interpreted Pennsylvania law). Second, those cases are all
component parts cases. In such cases, it is well-settled law that
the buyer of a finished product cannot maintain a tort claim
against the manufacturer if one of the finished product’s
components is defective and causes damage to other parts of the
product. See, e.g., Easling v. Glen-Gery Corp., 804 F. Supp.
585, 590 (D.N.J. 1992) (holding that the plaintiffs, who bought
a fully-built apartment complex and not “a load of bricks,” could
not bring tort claims for damage caused by faulty bricks to the
mortar or to other parts of the complex), cited with approval in
Dean, 968 A.2d at 201. Significantly, IFF is not attempting to
sue the manufacturer of one component of a vanilla bean.
Rather, IFF wishes to sue the manufacturer of the entire vanilla
bean. We think that factual distinction makes component parts
cases legally inapposite to this case. Finally, to the extent IFF
asks us to predict that the New Jersey Supreme Court would
give the phrase “other property” in the NJPLA the inflexible
definition IFF advocates, we decline to do so. As noted earlier,
such an approach would promote the displacement of contract
law by tort law, a result that the New Jersey Supreme Court has
specifically disapproved and that we therefore must try to avoid
in interpreting the NJPLA.

One final thought deserves mention. As a federal court

sitting in diversity, we are charged with predicting how another
court – in this case, the New Jersey Supreme Court – would rule
on the record presented to us. Because of the dearth of directly
on-point New Jersey case law, this case represents yet another
example of how difficult the predictive exercise can be. See,

Werwinski dealt with Pennsylvania law, but the

principle it articulated is applicable in any case in which a
federal court sits in diversity. See, e.g., Ashley County v. Pfizer,
552 F.3d 659, 673 (8th Cir. 2009) (narrowly interpreting
Arkansas law); Birchler v. Gehl Co., 88 F.3d 518, 521 (7th Cir.
1996) (narrowly interpreting Illinois law); see also Pearson v.
John Hancock Mut. Life Ins. Co., 979 F.2d 254, 259 (1st Cir.
1992) (noting that a plaintiff “cannot justifiably complain if [a]
federal court manifests great caution in blazing new state-law
trails” (citations omitted)).

e.g., Dolores K. Sloviter, A Federal Judge Views Diversity
Jurisdiction Through the Lens of Federalism, 78 Va. L. Rev.
1671, 1679-80 (1992) (cataloguing instances in which this Court
has “guessed wrong” in spite of “our best efforts to predict the
future thinking of the state supreme courts within our
jurisdiction on the basis of all of the available data”). Given that
difficulty, in reaching our conclusion we have exercised restraint
in accordance with the well-established principle that where
“two competing yet sensible interpretations” of state law exist,
“we should opt for the interpretation that restricts liability, rather
than expands it, until the Supreme Court of [New Jersey]
decides differently.” Werwinski, 286 F.3d at 680 (citations
omitted). To hold here, as IFF urges, that the NJPLA governs

its product liability crossclaim would undoubtedly subject
manufacturers and dealers to greater liability than does our
conclusion that the economic loss doctrine precludes that
crossclaim. Given the muddled state of New Jersey law on this
point, we must decline IFF’s invitation. To the extent our
conclusion enlarges the scope of contract liability at the expense

of tort liability, we believe that approach to be consonant with
the direction of available New Jersey law.

Because we predict that the New Jersey Supreme Court

would hold that IFF’s product liability crossclaim for what is
clearly economic loss sounds in contract is therefore barred by
the economic loss doctrine, we hold that the District Court did
not abuse its discretion in denying IFF’s request with respect to
that crossclaim and will affirm its ruling in that respect.

IFF’s Proposed Express Indemnification
Crossclaim

IFF argues that the District Court erred in denying its

request to assert an express indemnification crossclaim. In that
proposed crossclaim, IFF alleged that its contract with
Dammann included two express indemnity clauses and that
Dammann, despite demand, had refused to indemnify IFF.
Under New Jersey Law, express contractual indemnification
claims are subject to a six-year statute of limitations. See N.J.
Stat. Ann. § 2A:14-1; see also First Indem. of America Ins. Co.
v. Kemenash, 744 A.2d 691, 696 (N.J. Super. Ct. App. Div.
2000).

The first clause in the parties’ contract, titled “REWORK

AND PRODUCT LIABILITY INDEMNIFICATION,”
provides, in pertinent part: “Seller shall be responsible for
claims by third parties against Buyer for loss or damage based
on personal injury or destruction of property due to defects in
the product for which Seller is responsible.” (App. 196.) The
second clause, labeled “PERSONAL INJURY AND

PROPERTY DAMAGE LIABILITY INDEMNIFICATION,”
states:

Seller agrees to defend, indemnify and hold
harmless Buyer from all claims, actions, losses,
damages and expenses resulting from any injury
to persons, damage to property or action by any
regulatory agency, arising out of or in any way
associated with the design, installation, and/or
operation of any production formulation,
packaging, or support equipment (including
equipment owned by Seller, Buyer or Third
Parties), used in the production, processing or
handling of the product(s) sold hereunder and all
raw materials used in the production[.]

(App 197.)

The District Court reasoned that an indemnification claim

is viable only where the indemnitee seeks to “obtain recovery
from the indemnitor for liability incurred to a third party.”
Travelers Indem., 592 F. Supp. 2d at 767 (emphasis omitted).
The Court found no authority under New Jersey law to support
IFF’s position that an indemnitee may sue an indemnitor for
damages to the indemnitee itself. Thus, the District Court ruled
that IFF’s indemnification claim, to the extent it sought such
first-party damages, was in fact governed by contract principles
and consequently time-barred under the U.C.C.’s four-year

In reaching that conclusion, the District Court relied on

Feigenbaum v. Guaracini, 952 A.2d 511 (N.J. Super. Ct. App.
Div. 2008), which said that “under a contract of indemnity, the
promissor undertakes to protect the promissee against loss or
liability to a third person[.]” Id. at 518 (internal quotation marks
and citation omitted). Nothing in Feigenbaum, however, says
that indemnification clauses categorically bar first-party claims.
No other New Jersey legal authority appears to support that
proposition, and no party in this case has pointed us to any such
authority. The District Court also relied on Titanium Metals
Corp. v. Elkem Management, Inc., 87 F. Supp. 2d 429 (W.D. Pa.
1998), but that case is unhelpful here. First, the portion of that
case the District Court in this case cited merely parrots
Feigenbaum’s pronouncement that indemnity claims, as a
general matter, arise by virtue of the indemnitee’s liability to a
third party. See id. at 430-31. But the general rule does not
necessarily preclude an indemnitee from suing its indemnitor for
damage the indemnitee itself suffers. Furthermore, Titanium
Metals interpreted Pennsylvania law, which is not the law
governing this case.

statute of limitations. To the extent IFF’s proposed express

indemnification crossclaim was based on third-party damage,
the District Court concluded that IFF had not alleged any such
damage. Recognizing that IFF alleged that its customers had
sought refunds for the contaminated vanilla extract they had
bought, the Court examined the language of the indemnification
clauses in IFF’s and Dammann’s contract and determined that
none of the claims asserted by IFF’s customers came within the
scope of those clauses. Specifically, the Court noted that while

one of those clauses allowed for indemnification where a third
party suffered personal injury or property damage due to product
defects, IFF had not actually alleged that any of its customers’
claims were based on personal injury or property damage. With
respect to the other clause, the Court found that IFF had not
alleged that “it paid its customers and distributors for claims
arising out of the design, installation, or operation of production
formulation, packaging or support equipment[,]” id. at 768,
although, in the Court’s view, that clause allowed for
indemnification only in the event of such a circumstance.
Accordingly, the District Court held that IFF had failed to state
an express indemnification claim.

Turning first to IFF’s express indemnification claim for

first-party damages, we, like the District Court, have unearthed
no New Jersey case that actually permits an indemnitee to
maintain the sort of claim that IFF wishes to assert against
Dammann. To support its view, IFF correctly asserts that the
word “indemnity” generally enjoys a broad definition. See
Black’s Law Dictionary 783 (8th ed. 2004) (defining indemnity
as “[a] duty to make good any loss, damage, or liability incurred
by another” (emphasis added)). To be sure, given the expansive
meaning of “indemnity” and New Jersey law’s respect for the
ability of parties to contract freely, see Spring Motors, 489 A.2d
at 668 (noting “the principle that parties should be free to make
contracts of their choice”); see also, e.g., Solondz v. Kornmehl,
721 A.2d 16, 19 (N.J. Super. Ct. App. Div. 1998) (“We must
enforce the contract which the parties themselves have made.”
(citations omitted)), we cannot hold that first-party
indemnification claims such as the one IFF seeks to maintain are
categorically barred as a matter of law in New Jersey absent

direct authority to that effect. But we need not presume the
existence of such a sweeping rule to conclude that, under the
circumstances presented here, IFF’s crossclaim is nevertheless
fatally flawed.

Under New Jersey law, we must interpret the parties’

contract according to its plain language, see State Troopers
Fraternal Ass’n of N.J. v. State, 692 A.2d 519, 523 (N.J. 1997),
by “read[ing] the document as a whole in a fair and common
sense manner[,]” Hardy ex rel. Dowdell v. Abdul-Matin, 965
A.2d 1165, 1169 (N.J. 2009) (citation omitted). We must also
endeavor to avoid ignoring certain words or reading the contract
in such a way as to make any words “meaningless.”
Cumberland County Improvement Auth. v. GSP Recycling Co.,
Inc., 818 A.2d 431, 438 (N.J. Super. Ct. App. Div. 2003). In
other words, we must interpret the word “indemnify” in relation
to the words “defend” and “hold harmless.” Cf. United States
v. CDMG Realty Co., 96 F.3d 706, 714 (3d Cir. 1996) (noting
“the constructional canon noscitur a sociis, which states that one
may infer meaning by examining the surrounding words”), cited
with approval in State v. Watkins, 940 A.2d 1173, 1183 (N.J.
2008).  When we apply these principles to the clause on which
IFF relies, it becomes clear that, just as Dammann cannot
“defend” IFF from itself or “hold harmless” IFF for IFF’s own
wrong, Dammann cannot “indemnify” IFF for IFF’s own loss.
Put another way, the only sensible reading of that clause
evidences a requirement that third-party liability exist for the
clause to be triggered.  IFF’s interpretation impermissibly reads
that requirement out of the contract. See, e.g.,  Hardy, 965 A.2d
at 1169-70 (declining to read an insurance contract in such a
way as to render certain terms meaningless). As a consequence,

Although the District Court did not resolve this issue

solely on the basis of the parties’ contract, as we do, we may
affirm on any ground supported by the record. Nicini v. Morra,
212 F.3d 798, 804 (3d Cir. 2000) (en banc).

IFF asserts that, liberally construed, its proposed

indemnification crossclaim based on the first clause contains
adequate allegations from which to infer that its customers’
claims were due to personal injury or destruction of property.

IFF’s indemnification crossclaim for first-party damages fails as
a matter of law. By extension, we do not find that the District
Court abused its discretion in denying IFF’s request for leave to
assert that crossclaim.

Turning next to IFF’s express indemnification crossclaim

based on third-party damages, we must again consider the
clauses’ language. IFF argues that both clauses obligate
Dammann to indemnify IFF for IFF’s liability to its customers
based on the contaminated flavoring and that IFF alleged as
much in its proposed crossclaim. IFF gives the first clause too
liberal a reading. As noted above, that clause requires
Dammann to compensate IFF for “loss or damage based on
personal injury or destruction of property due to defects” in the
vanilla beans. (App. 196.) IFF’s proposed crossclaim is devoid
of even an oblique suggestion that any customer that asserted a
claim against IFF suffered personal injury or property damage.
Accordingly, the District Court did not abuse its discretion when
it concluded that IFF failed to state a claim based on the first
clause.

That assertion is unpersuasive. The Supreme Court has recently
made clear that a “a complaint must contain sufficient factual
matter . . . to state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (internal
quotation marks and citation omitted). Glaringly absent from
IFF’s proposed crossclaim is any factual allegation whatever
regarding the nature of its customers’ purported losses. We
must reject IFF’s position that we should infer facts where none
have been alleged, as it is clearly at odds with governing
pleading standards.

IFF’s understanding of the second clause is likewise

misguided. That clause, as noted above, requires Dammann to
compensate IFF for losses “arising out of or . . . associated with
the design, installation, and/or operation of any production
formulation, packaging, or support equipment . . . used in the
production, processing or handling of the product(s) sold
hereunder and all raw materials used in the production[.]” (App
197.)  IFF clings to the phrase “raw materials” to show that it
adequately alleged that its customers suffered damage to their
raw materials.  IFF’s isolation of that phrase is unavailing. The
clause at issue here clearly imposes an obligation on Dammann
only if IFF incurs liability to a third party in connection with
“the design, installation, and/or operation of any production
formulation, packaging, or support equipment.”  The remaining
portion of the clause that IFF spotlights has not been triggered
because IFF does not allege that its predicate – the first part of
the clause – is met.  That is, IFF nowhere alleges that any claim
against it by a third party bears any relation to the “design,
installation, and/or operation” of the various activities

IFF argues that, even if we agree with the District

Court, we should remand to allow IFF to amend its express
indemnification crossclaim. In this Court, “if a complaint is
vulnerable to [Federal Rule of Civil Procedure] 12(b)(6)
dismissal, a district court must permit a curative amendment,
unless an amendment would be inequitable or futile.” Phillips
v. County of Allegheny, 515 F.3d 224, 236 (3d Cir. 2008)
(citation omitted). That rule applies “even if the plaintiff does
not seek leave to amend.” Id. at 245 (citation omitted). Our
application of that rule ordinarily has not arisen in the context,
presented here, in which a litigant’s motion for leave to file a
crossclaim is denied on Rule 12(b)(6) grounds. However, we
have also explained that “‘[f]utility’ means that the complaint,
as amended, would fail to state a claim upon which relief could
be granted.” In re Burlington Coat Factory, 114 F.3d at 1434
(citation omitted). Thus, we have found no abuse of discretion
where a district court has denied a litigant leave to amend on
futility grounds based on a finding that the proposed claim
would be subject to dismissal under Rule 12(b)(6). See, e.g., In
re Alpharma Sec. Litig., 372 F.3d 137, 153-54 (3d Cir. 2004); In
re Burlington, 114 F.3d at 1435. IFF’s position that it should
have been forewarned by the District Court of the insufficiency
of its proposed crossclaims is unsupported by our precedent.
Furthermore, to the extent IFF contends that it was caught off-
guard by the District Court’s denial of its request for leave, we

enumerated in the rest of the clause. IFF has therefore failed to
state an indemnification claim for third party damages, and the
District Court, by extension, did not abuse its discretion in
denying IFF’s request as it pertained to that crossclaim.

see no basis in the record for such a contention. We have held,
in similar, though not identical, circumstances that a district
court may sua sponte “raise the issue of the deficiency of a
complaint under Rule 12(b)(6), so long as the plaintiff is
accorded an opportunity to respond.” Oatess v. Sobolevitch, 914
F.2d 428, 430 n.5 (3d Cir. 1990) (citations omitted). Here, one
of the grounds on which the appellees opposed IFF’s motion for
leave in the District Court was IFF’s alleged failure to state
indemnification claims based on the very language of the
indemnification clauses in IFF’s contract with Dammann.
Therefore, IFF was on notice that its proposed crossclaims were
being challenged on pleading-sufficiency grounds and had an
opportunity to meet that challenge. And, in fact, IFF filed a
reply brief in which it availed itself of that opportunity, albeit
unsuccessfully. In short, IFF cannot complain that it was
blindsided.

Accordingly, we conclude that the District Court did not

abuse its discretion in denying IFF’s request for leave to assert
an express indemnification crossclaim.

IFF’s Proposed Implied Indemnification
Crossclaim

IFF challenges the District Court’s denial of its request

with respect to its proposed implied indemnification crossclaim.
The District Court found that crossclaim wanting for many of
the same reasons discussed above. To the extent IFF sought
compensation for first-party damages, the Court found that IFF
in fact stated a direct liability claim. To the extent IFF sought

compensation for third-party damages, the Court noted that IFF
failed to allege that it had incurred “any ‘legal obligation’ under
which it was compelled to pay the claimed money to its
customers and distributors” and failed to point to any
“settlement agreement, court order, etc. under which it was
obligated to make these payments.” Travelers Indem., 592 F.
Supp. 2d at 768. Accordingly, the District Court held that IFF
failed to state a claim for implied indemnification.

IFF has no quarrel with the District Court’s determination

that it did not state a claim for first-party damages because,
according to IFF, it never asked for such damages. Instead, IFF
trains its sights on the District Court’s ruling with respect to its
indemnification crossclaim for third-party damages. In its brief,
IFF recites the following chronology to support that crossclaim:
IFF notified the Food and Drug Administration (“FDA”) of the
potential contamination of the vanilla beans it bought from
Dammann; the FDA subsequently classified those beans as
“adulterated” under federal law; IFF’s sale of vanilla extract
made from the adulterated beans led to customer claims against
IFF; and IFF made demand on Dammann for compensation in
connection with those claims. IFF maintains that it is strictly
liable under New Jersey law for its vanilla extract sales and that
it was therefore obligated to compensate its customers. In IFF’s
view, its “customers did not need to establish [its] ‘legal
obligation’ through a lawsuit [because] IFF made . . . payment
. . . under penalty of law.” (Appellant’s Br. 58.)

In New Jersey, the right of indemnity “is a right which

enures to a person who, without active fault on his own part, has
been compelled, by reason of some legal obligation, to pay

damages occasioned by the initial negligence of another, and for
which he himself is only secondarily liable.” Adler’s Quality
Bakery, Inc. v. Gaseteria, Inc., 159 A.2d 97, 110 (N.J. 1960)
(emphasis supplied and internal quotation marks and citation
omitted); see also George M. Brewster & Son, Inc. v. Catalytic
Constr. Co., 109 A.2d 805, 810 (N.J. 1954) (“Indemnitors are
within the rule that the doctrine may be invoked in favor of one
who is under a legal duty to repair a loss ensuing from the
tortious act or omission of another.” (emphasis supplied and
citations omitted)); Tryanowski v. Lodi Bd. of Educ., 643 A.2d
1057, 1061-62 (N.J. Super. Ct. Law Div. 1994).

Here, because Dammann’s duty to indemnify arises from

a “legal obligation to pay damages,” IFF had to allege a legal
duty to compensate its customers in order to state an implied
indemnification claim. A careful review of IFF’s proposed
crossclaim reflects no such allegation. Although IFF states that
it notified both its customers and the FDA of possible
contamination and that the vanilla beans were later determined
to be prohibited from sale under federal law, IFF alleges – in the
product liability count of its proposed crossclaim – only that it
“was required to issue credits and/or refunds to its customers
and distributors that had purchased mercury contaminated flavor
products” and that “Dammann owes a common law duty to
indemnify IFF.” (App. 307, 310.) Importantly, that allegation
refers only to some amorphous, unspecified requirement. Even
the most indulgent reading does not suggest that IFF was legally
obligated to compensate its customers. The absence of such an

In its appellate brief, IFF argues that it was in fact

legally obligated to pay its customers because of its alleged strict
liability under New Jersey law. But before the District Court
IFF never explicitly pressed any such legal obligation. In its
reply to CBI’s opposition to the appeal of Judge Shipp’s ruling,
IFF asserted only that “there is no support for CBI’s contention
that IFF had no legal obligation to make payment to those
customers who were supplied with the mercury[-]contaminated
product.” (IFF’s Reply Br. in Support of Appeal of August 13,
2008 Order and for Leave to File Am. and Supp. Cross-cl. at 15,
Nov. 10, 2008.) In its proposed crossclaim, however, IFF
alleged only that the extract it produced using the contaminated
beans was prohibited from sale under federal law. Importantly,
there was no allegation that such a prohibition retroactively
imposed an actual legal duty on IFF to compensate its
customers. In essence, IFF seeks to retrofit arguments presented
on appeal onto allegations it failed to incorporate into its
proposed crossclaim and accompanying motion for leave before
the District Court. Because IFF did not present such a legal
obligation to the District Court, it is precluded from doing so in
this Court. See Fletcher-Harlee Corp. v. Pote Concrete
Contractors, Inc., 482 F.3d 247, 253 (3d Cir. 2007).

Judge Stapleton would affirm the District Court’s ruling

on the common law indemnity claim because the Food, Drug,
and Cosmetic Act, the foundation of its argument before the
District Court, does not create a private cause of action available
to IFF’s customers. In re Orthopedic Bone Screw Prods. Liab.

allegation is fatal to IFF’s proposed indemnification claim.

Litig., 193 F.3d 781, 788 (3d Cir. 1999).

We express no opinion on the District Court’s

conclusion – specifically challenged by IFF – that the absence
of a “settlement agreement[] [or] court order[,]” Travelers
Indem., 592 F. Supp. 2d at 768, was fatal to IFF’s claim. Our
more limited holding is premised only on IFF’s failure to allege
the existence of a legal duty, not on the existence vel non of a
settlement agreement or judgment against IFF.

Accordingly, we will decline to upset the District Court’s
holding that IFF failed to state an implied indemnification claim
for third-party damages.

IV. CONCLUSION

For the foregoing reasons, we will affirm the District

Court’s judgment.