Economic Loss Doctrine Bars Plaintiff’s Fraud Claim

Where a commercial plaintiff suffered only economic damages due to the purchase of allegedly defective trucks, its fraud claim was barred by the economic loss doctrine. In Milan Supply Chain Solutions Inc. F/K/A Milan Express Inc. v. Navistar Inc., No. W2018-00084-COA-R3-CV (Tenn. Ct. App. Aug. 14, 2019), plaintiff purchased over 200 trucks from defendant to use in its logistics and hauling company. The trucks were covered by a standard “Limited Warranty,” and plaintiff purchased “Optional Service Contracts.” Under these agreements, defendant “agreed to repair or replace parts of the trucks that proved defective,” but the documents also stated that “no warranties were given beyond those described in the warranty documents…”

Plaintiff filed suit against defendants alleging that the trucks were defective and that that defendant had made “a number of misrepresentations concerning the trucks.” The complaint included claims for breach of contract, breach of express and implied warranties, violation of the Tennessee Consumer Protection Act, and fraud. While several claims were dismissed prior to trial, the claims against defendant Navistar proceeded to jury trial, and the jury entered a verdict for plaintiff on the intentional misrepresentation claim. The Court of Appeals, however, reversed, finding that the “asserted fraud claims [were] barred by the economic loss doctrine.”

“The economic loss doctrine is a judicially created principle that prevents a party who suffers only economic loss from recovering damages under a tort theory.” (internal citation and quotation omitted). Reviewing the purpose of the doctrine, the Court stated:

Contract and tort are separate and distinct areas of the law that provide separate and distinct remedies. A party who enters into a contract which contains terms that limit recovery in the event of a breach is typically unable to circumvent such provisions by alleging a tort occurred as well. …The policy undergirding the economic loss doctrine is that contract law and warranty law are best suited to address a purchaser’s economic loss. …[T]he economic loss doctrine prevents parties from subverting their contract and recovering in tort what they could not obtain through their contractual remedies.

(internal citations and quotations omitted). In its opinion, the Court explained that economic losses can include “direct economic losses and consequential economic losses attributable to a product,” but they “do not include personal injuries or damage to other property.” (internal citations omitted).

Here, plaintiff’s claimed damages were “strictly commercial financial losses, and these losses implicate the type of injury for which the economic loss doctrine would bar tort recovery.” The issue in this case, though, was whether there was an exception to the economic loss doctrine for fraud claims.

The Court explained that the economic loss doctrine is “undisputedly a valid feature of Tennessee law,” but that there was no Tennessee cases directly addressing whether there was an exception for fraud claims. A review of other states revealed three approaches to fraud: “(1) there is no exception to the economic loss doctrine; (2) there is a general exception for all fraud in the inducement claims; or (3) a narrow exception exists where the fraud is not interwoven with the quality or character of the goods for which the parties contracted or otherwise involved performance of the contract.” (internal citation and quotation omitted). The Court ultimately decided that under the facts of this case, it need not decide which approach Tennessee used. The Court ruled:

While no Tennessee appellate court has found that an exception to the economic loss doctrine exists for extraneous fraud that is unrelated to the quality and character of the goods sold, we need not address it here because the claimed misrepresentations in this case clearly relate to the quality of the trucks purchased by [plaintiff]. …[W]e hold that where the alleged fraud, as in this case, relates to the quality of the goods sold, the economic loss doctrine is a bar and any remedies must be pursued in contract/warranty law.

Accordingly, “[b]ecause only economic loss [was] at issue here and [plaintiff’s] fraud claims concern the quality of the trucks sold to it, [the Court held that] those claims [were] barred by the economic loss doctrine.” The jury’s verdict for plaintiff was reversed.

This opinion contains a thorough analysis of the economic loss doctrine, and it’s an important read for any plaintiff who has suffered only economic losses as they consider what claims should be asserted in a complaint or, indeed, whether they can assert any claims at all.  Look for a T.R.A.P. 11 petition to be filed in this case.   The Tennessee Supreme Court has not addressed an “economic loss doctrine” case in over a decade (Lincoln General Insurance Company v. Detroit Diesel Corporation).

NOTE: To aid lawyers in giving clients guidance about how long it takes to receive an opinion after oral argument in the appellate courts, we are going to start sharing that information with readers. Please understand that the length of time that elapses between oral argument and the date the opinion is released is dependent on a multitude of factors, not the least of which is the complexity of the issues presented. In this case, the opinion was released less than two months after oral argument.