Rescuing Contract from Drowning in a 'Sea of Tort'

The Economic Loss Doctrine:

Consider the following scenarios:

  • Defective structural steel used in the construction of a bridge has caused it to collapse. In suing the steel subcontractor, the general contractor seeks relief in tort for the damage to the steel itself and the attendant costs of salvaging, storing and testing it. Has the general contractor stated grounds for recovery?
  • The manufacturer/distributor of "Frostguard" negligently misrepresented in advertisements directed at farmers and other growers that the product would help protect tomatoes from the harmful effects of frost. After the "Frostguard" failed to work as advertised, the farmers sued in tort for economic damages resulting from the lost profits. Do the farmers have grounds for relief against the manufacturer/distributor?
  • A labor union brings an action in tort against a factory owner for wages lost by workers in an industrial park that was closed for a day when the factory owner's propane tank began leaking. The union argues that the owner's negligence violated a duty of care to the workers that caused them economic damage. Has the union stated a valid cause of action?


The above fact patterns raise the economic loss doctrine. This judicially created rule has two distinct but related strands. First, and more prominently, when the purchaser of a product sustains economic loss without personal injury or damage to property other than the product itself, the purchaser must seek a remedy in contract, not in tort.1 Second, where the parties do not have a contract, and one party sues another in tort for negligence, there can be no recovery for purely economic loss absent the plaintiff's physical injury or property damage.2 Applying these tests, Tennessee appellate courts determined the above plaintiffs failed to state grounds for relief.3 Thus, it can be seen that the economic loss doctrine is a powerful shield for defendants and a difficult obstacle for plaintiffs.

The economic loss rule is simply stated but applied with "great difficulty."4 To compound the problem in Tennessee, our courts lack a definitive body of law on this subject in the reported cases.5 Accordingly, reliance on unreported Tennessee decisions, cases from other jurisdictions, and the secondary literature will be of value. In providing practitioners a better understanding of this vital principle at the boundary of tort and contract law, this article will define the rule, explain its policy and scope, and explore some key substantive issues.

'Economic Loss' Defined

Economic loss is pecuniary loss.6 Regarding a defective product, damages for an economic loss can take two forms: direct and consequential. Direct economic losses relate to the product itself and include costs of repairing or replacing the product or the diminution of the product's value because it is of an inferior quality or does not work for the general purpose for which it was manufactured and sold. Consequential economic losses include all other economic losses attributable to the product itself such as the loss of profits resulting from the plaintiff's inability to use the defective item.7

Underlying Policy

Contract law, and the law of warranty in particular, is better suited than tort law to resolve claims of economic loss, because contracting parties have the freedom to set the terms of their agreement and to assume, allocate, or insure against risk.8 The economic loss doctrine thereby prevents parties from extricating themselves from their bargains and recovering in tort what they could not obtain under their contract.9 Put another way, if courts allowed a contracting party to subvert contractual remedies through the greater relief available from tort, such as punitive damages, contracts allocating risks would be easily circumvented,10 and contract law would "drown in a sea of tort."11

Where the plaintiff and defendant lack a contract for the sale of goods, and the party bringing a negligence action seeks economic damages, but there is no physical injury or property damage such as in the third scenario above, different policy considerations are controlling in what one Tennessee decision terms an "indirect economic loss" principle.12 The plaintiff's economic losses usually are too remote, even if foreseeable, and granting a remedy would lead to a mass of litigation. Furthermore, the plaintiff's interests are outweighed by judicial fears of fraudulent claims, limitless liability, or liability out of relation to the defendant's fault.13

Scope of the Doctrine in Tennessee

As with most jurisdictions, the Tennessee economic loss doctrine originated in products liability claims.14 The Tennessee Supreme Court first recognized the economic loss doctrine in such a case, stating a manufacturer does not have a duty to avoid causing purely economic damage and a consumer does not have an action in tort for economic damages under strict liability.15 Numerous Tennessee decisions continue to apply the doctrine in the products liability setting.16 Consumer transactions fall within the doctrine,17 as do tort actions based on breach of either an express or implied warranty.18 Parties may agree expressly to indemnification for economic loss,19 but the status of implied indemnification (i.e., judicially imposed in the interests of justice) for economic loss has scant authority.20

Tennessee courts have not adopted an expansive view of the economic loss doctrine.21 One federal district court decision allowed recovery for economic loss stemming from the intentional tort of unfair competition22 and another district court clearly intimated that the doctrine does not override a claim for tortious conversion.23 A 2005 federal district court held the doctrine is inapplicable to service contracts, because a prerequisite for the economic loss principle is governance by Article 2 of the Uniform Commercial Code (UCC) and its restriction to transactions in goods.24 Notably, a plaintiff may maintain an action for purely economic loss based upon the tort of negligent misrepresentation, privity of contract not being required, when a defendant, acting in the course of his business or profession, negligently has supplied faulty information meant to guide others in a commercial transaction, and where the plaintiff justifiably relied upon the information.25 This same tort, however, does not allow damages for pure economic loss resulting from a product's failure to perform as expected.26

Key Issues

Two issues pertaining to the economic loss doctrine require more analysis: the meaning of "property damage" and whether a claim for intentional misrepresentation or fraudulent inducement to contract overrides the doctrine.

Economic Loss and 'Property Damage'

As stated in section one above, the economic loss doctrine bars a tort remedy when the purchaser of a product sustains an economic loss without damage to any property other than the product itself.27 "Property damage" is physical harm to the user's property.28 Courts will examine the gist of the lawsuit, and not just the allegations in the complaint, to determine whether the action is for economic loss.29 The method or manner of damage is not relevant in applying the doctrine, such as whether the harm resulted from gradual deterioration, internal breakage, or a calamitous event.30

An integrated package rather than the separate component parts is the product itself.31 The rationale is that because all but the simplest machines would require a finding of property damage in virtually every case where the product damaged itself, the law would eliminate the warranty/strict liability distinction.32 The original integrated product will include subsequent replacement parts when the parties contemplate these parts will be necessary as part of the object of their bargain.33

As stated by the U.S. Supreme Court, the economic loss doctrine does not apply to property damage because harm to the product itself is most naturally understood as supporting a warranty claim, instead of a tort recovery. Such "property damage" essentially means the product has not met the customer's expectations, that is, the customer has received insufficient product value because it works improperly or not at all. Express and implied warranties (such as the implied warranty of merchantability) serve to maintain this product value. In this respect, the law of warranty is better suited for addressing economic loss than tort law " the former regime allows the parties to set the terms of the bargain to protect themselves, whereas the latter could subject the defendant to indefinite liability. Warranty makes the plaintiff whole by compensating him for the costs of repair or replacement and any consequential loss of profits. Further, these potential losses can be insured. Accordingly, a claim for a nonworking product should be brought either as a breach of warranty case or, less commonly, as a breach of contract action where the customer rejects the product and revokes acceptance.34 The Tennessee Court of Appeals has adopted the court's analysis.35

An important qualification exists to the property damage principle. Although a plaintiff cannot recover in tort for physical damage the product causes to itself, even if the final manufacturer did not supply the particular defective component,36 a party may seek tort damages for physical damage the defective product causes to "other property" (which differs from "incidental property").37 The primary policies exempting "other property" damage from the economic loss rule are (1) the subsequent user does not contract directly with the manufacturer or distributor, and (2) a consumer " a commercial user and reseller " will likely find it difficult to offer an appropriate warranty on the used product akin to a manufacturer or distributor's warranty, primarily because he would know less about the risks involved in that he did not make or distribute the product.38

Factual issues can exist on whether the damage was to "other property." Thus, where a tour bus self-combusted because of a defective heater, the bus was not "other property" to the heater, but it was an integrated package that had the heater as a component.39 The analysis for "other property" also depends on the identity of the item the seller has placed in the stream of commerce and whether this property was part of product sold to the initial user. In Saratoga Fishing Co. v. J.M. Martinac & Co.,40 for example, a United States Supreme Court case, the plaintiff's fishing vessel sank because the defendant boat manufacturer installed a defective hydraulic system that caused an engine room fire. The original purchaser of the vessel had added a skiff, a seine net and miscellaneous spare parts that were all incorporated into the vessel when resold to the plaintiff. Therefore, the court held the plaintiff could recover in tort for this "other property" damage, although the defendant could still assert possible defenses such as the lack of forseeability or proximate cause.

The Tennessee Court of Appeals has recognized this "other property" qualification to the economic loss doctrine, although the court's decisions differ on its particulars. In Trinity Industries Inc. v. McKinnon Bridge Co.,41 the court said that "other property" excludes the type of property one would reasonably expect to be injured as a direct consequence of the failure of the defective product. These damages, the Trinity panel observed, are essentially for failed commercial expectations or loss of the benefit of the bargain. A later case, however, Messer Griesheim Industries Inc. v. Cryotech of Kingsport Inc.,42 rejected the Trinity standard as "overly broad." The Messer case reasoned that if the law eliminated all defective products from the definition of "other property," simply because a user could have a reasonable expectation of injury, then a remote purchaser could never recover from a manufacturer for property damage in tort. Because the U.S. Supreme Court in Saratoga Fishing, analyzed above, allowed tort damages for loss to "other property" predicated on the identity of the item the defendant originally has placed in the stream of commerce, as opposed to whether the other property damage was reasonably foreseeable, Messer states the better view.43

Application to Fraudulent Inducement

A, the purchaser, alleges that B, the seller, has knowingly and intentionally misrepresented in a material way the quality of a computer software system. A states he reasonably relied on B's representations and, as a result of the fraudulent inducement, A has incurred damages for repairing the product as well as lost profits for system down time. Do these facts " which establish fraudulent inducement44 " invoke the economic loss doctrine?

Tennessee precedents are unclear on whether the economic loss principle's restraint on damages would apply to fraudulent inducement. One line of case law indicates the economic loss doctrine would bar a cause of action for fraud and misrepresentation. Thus, the Tennessee Court of Appeals in Trinity (which did not address fraudulent inducement on the merits) observed in dicta:

This doctrine was created by courts to avoid the "coming collision between warranty and contract on the one hand and the torts of strict liability, negligence, fraud and misrepresentation on the other." The economic loss doctrine draws the line between tort and warranty by barring recovery for economic losses in tort actions ...

Courts should be particularly skeptical of business plaintiffs who " having signed an elaborate contract or having signed a form when they wish had they had not " claim to have a right in tort whether the tort theory is negligent misrepresentation, strict tort, or negligence.45

In another argument for the view that the economic loss doctrine should govern fraudulent inducement, a party could cite the Tennessee Supreme Court's decision in Ritter v. Custom Chemicides Inc. This case imposed the doctrine for negligent misrepresentation based on information negligently supplied for the guidance of others in their business transactions when the product did not work as well as could be expected.46 Thus, it can be argued the economic loss doctrine should apply in fraud cases, because contractual inducement in this setting based upon negligent misrepresentation is a close cousin of fraudulent inducement.47

Notwithstanding the above decisions, other Tennessee cases indicate the doctrine would not apply to fraudulent inducement. In Messer Griesheim Industries Inc. v. Cryotech of Kingsport Inc.,48 the Tennessee Court of Appeals upheld the dismissal of a negligence claim, based on the economic loss rule, but addressed on the merits an actual fraud claim related to the same set of facts. A 2007 unreported Tennessee district court decision observed that, notwithstanding the economic loss rule, claims of fraudulent inducement generally remain viable either in the products liability context or if the parties are in privity of contract. The court proceeded to consider the fraudulent inducement claim on the merits.49 Additionally, the United States Court of Appeals for the Sixth Circuit in a 1990 decision allowed the plaintiff compensatory and punitive damages for defendant's promissory fraud arising out of a breach of contract.50 No Tennessee cases have applied the economic loss rule to dismiss a fraud claim where the plaintiff was able to prove actual fraud.51
An unreported 2007 federal district court decision recognized this uncertainty in Tennessee law and ruled the doctrine did not bar the plaintiff's misrepresentation claim:

Given that a fraud in the inducement claim presents a special situation where parties to a contract appear to negotiate freely " which normally would constitute grounds for invoking the economic loss doctrine " but where in fact the ability of one party to negotiate fair terms and make an informed decision is undermined by the other party's fraudulent behavior, the Court concludes that the economic loss doctrine would not bar [plaintiff's] misrepresentation claim.52


American jurisdictions have taken three approaches regarding fraudulent inducement and the economic loss principle. First, a narrow exception exists for fraud where the inducement under the fraud is extraneous to rather than interwoven with the contract, i.e., where the only fraud or misrepresentation concerns the quality or character of the goods sold as opposed to the breaching party's fraudulent performance of the contract. Other courts either have no exception for fraud or broadly allow recovery for all fraud in the inducement claims.53 Which position would our courts adopt in analyzing fraudulent inducement and the economic loss doctrine?

Relying on the above-quoted Trinity dictum from the Tennessee Court of Appeals, the U.S. Court of Appeals for the Seventh Circuit has construed Tennessee case law to accept the above intermediate view limiting the fraudulent inducement exception to matters not expressly addressed in the contract.54 The prediction here, however, is Tennessee will (or should) adopt the broad position allowing full recovery for fraudulent inducement, which is the majority rule,55 as explained below.

The primary reason for this suggestion is the UCC itself, which marks the boundaries of the economic loss doctrine. Tenn. Code. Ann.  § 47-1-103 says that unless displaced by the UCC, the principles of law and equity pertaining to fraud and misrepresentation "shall supplement its provisions." To the same effect, Tenn. Code. Ann.  § 47-2-721 says that remedies for material misrepresentation or fraud include all remedies available under title 47, chapter 2, for nonfraudulent breach.56 Therefore, it would violate Tennessee statutory law and our state's strong anti-fraud policy57 to deprive a plaintiff of a full remedy for fraud because of the economic loss doctrine.58

The separate, albeit linked, nature of tort and contract supports this statutory interpretation. The economic loss rule should not apply to any claims arising from a duty independent from the contract,59 and the avoidance of fraud and misrepresentation is such an established independent duty.60 Practically speaking, the economic loss rule literally interpreted would abolish the tort of fraudulent inducement to contract in the sale of goods, unless a party wishes to increase greatly transaction costs and to insist that its counterpart reduce all representations to writing.61 The Restatement (Third) of Torts also indicates that fraud and misrepresentation claims are separate from product liability actions and may be pursued in commercial lawsuits irrespective of whether the plaintiff also has filed a warranty claim in the same action.62 Accordingly, the position exempting from the economic loss doctrine all fraudulent inducement claims for the sale of goods best serves the public interest by more comprehensively deterring fraud, facilitating a deceit-free business atmosphere, and making parties more confident in the terms of their contracts.63

Conclusion

In Tennessee, the economic loss doctrine is rooted in traditional concepts of tort and contract law, but is not expansively construed. The rule keeps product liability and contract law in separate spheres to maintain a realistic limitation on tort damages. Also, the Tennessee doctrine is limited to products liability and the sale of goods under the UCC, and is inapplicable to service contracts and to negligent misrepresentations provided for the guidance of others in their business transactions. The key unresolved issues are the relation to the particulars of "other property" and to fraudulent inducement to contract. Simply put, the Tennessee version of the rule leaves to contract law and the UCC the question of compensation for economic losses, and confines product liability in tort to theories of personal injury and to injury to property other than the goods sold originally.

Notes

1. Hansen v. Liberty Partners LLC, 2005 WL 3527162, at *11 (M.D. Tenn. 2005) (purchasers of products cannot recover purely economic damages under negligence or product liability theories); McLean v. Bourget's Bike Works Inc., 2005 WL 2493479, at *5 (Tenn. Ct. App. Oct. 7, 2005). See generally Town of Alma v. Azco Const. Inc., 10 P.3d 1256, 1259-61 (Colo. 2000)(tracing history of economic loss doctrine).
Depending on the facts, the plaintiff might be entitled to pursue damages as allowed by law, such as through the Tennessee Consumer Protection Act, Tenn. Code Ann. 47-18-109. See generally Matthew Evans & John Elder, "An Update on the Tennessee Consumer Protection Act," 42 Tenn. B.J. 26 (Feb. 2006).

2. United Textile Workers of America, AFL-CIO v. Lear Siegler Seating Corp., 825 S.W.2d 83 (Tenn. Ct. App. 1990).

3. See Trinity Industries v. McKinnon Bridge Co., 77 S.W.3d 159 (Tenn. Ct. App. 2001) (#1); Ritter v. Custom Chemicides Inc., 912 S.W.2d 128 (Tenn. 1995) (#2); United Textile Workers of America, 825 S.W.2d 83 (#3).

4. Sandarac Ass'n v. W.R. Frizzell Architects Inc., 609 So. 2d 1349, 1352 (Fla. Dist. Ct. App. 1992). See generally Symposium, Dan B. Dobbs Conference on Economic Tort Law, 48 Ariz. L. Rev. 693, passim (2006).

5. Trinity, 77 S.W.3d at 173.

6. Ritter, 912 S.W.2d at 129 n.1.

7. McLean, 2005 WL 2493479, at *6. See also Trinity, 77 S.W.3d at 171 (such losses are property damages in one sense, but are more accurately classified as economic losses).

8. Ritter, 912 S.W.2d at 133; Trinity, 77 S.W.3d at 171-72; Kaloti Enterprises Inc. v. Kellogg Sales Co., 699 N.W.2d 205, 216 (Wis. 2005).

9. Stoughton Trailers Inc. v. Henkel Corp., 965 F. Supp. 1227, 1230 (W.D. Wis. 1997); Kailin v. Armstrong, 643 N.W.2d 132, 144 (Wis. App. 2002); In re Starlink Corn Products Liability Litigation, 212 F. Supp. 2d 828, 840 (N.D. Ill. 2002) (also stating the absence of a viable contract remedy does not entitle a plaintiff to recover in tort). See Craig K. Lawler, "Forseeability and the Economic Loss Rule " Part I," 33 Colorado Lawyer 81 (2004); R. Joseph Barton, Note, Drowning in a Sea of Contract: Application of the Economic Loss Rule to Fraud and Negligent Misrepresentation Claims, 41 Wm. & Mary L. Rev. 1789 (2000) (excellent analyses of policy considerations).

10. See All-Tech Telecom Inc. v. Amway Corp., 174 F.3d 862, 865-66 (7th Cir. 1999) (Posner, J.); Daannen & Jannssen Inc. v. Cedarapids Inc., 573 N.W.2d 842, 847-48 (Wis. 1998); Gunkel v. Renovations Inc., 822 N.E.2d 150, 155 (Ind. 2005).

11. E. River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 866 (1986) (cited with approval in Tenn. Farmers Mut. Insur. Co. v. Ford Motor Co., 2002 WL 1332492 (Tenn. Ct. App. June 17, 2002)); Corso Enterprises Inc. v. Shop at Home Network Inc., 2005 WL 234986, at *6 n.7 (M.D. Tenn. Sept. 26, 2005). But see Linden v. Cascade Stone Co. Inc., 699 N.W.2d 189, 205 (Wis. 2005) (Walsh, J., dissenting) (expansive use of doctrine has resulted in generations of tort law "drowning in a sea of contract"); Paul J. Schwiep, "The Economic Loss Rule Outbreak: The Monster That Ate Commercial Torts," 69 Fla. B. J. 34, 36 (Nov. 1995) (strongly criticizing overly broad use of doctrine).

12. See Trinity, 77 S.W.3d at 182.

13. United Textile Workers of America, 825 S.W.2d 83. See generally Eileen Silverstein, "On Recovery in Tort for Pure Economic Loss," 32 U. Mich. J.L. Ref. 403 (1999).

14. See Walker Truck Contractors Inc. v. Crane Carrier Co., 405 F. Supp. 911 (E.D. Tenn. 1975); A.Y. McCrary v. Kelly Technical Coatings Inc., 1985 WL 75663 (Tenn. Ct. App. Aug. 28, 1985).

15. Ritter, 912 S.W.2d at 132-33 (analyzed in Hasler Aviation LLC v. Aircenter Inc., 2007 WL 2263171, at *7 (E.D. Tenn. Aug. 3, 2007)).

16. E.g., Hasler Aviation, 2007 WL 2263171 (non-airworthy aircraft with defects such as wing spar corrosion); Long v. Monaco Coach Corp., 2006 WL 2564040 (E.D. Tenn. Aug. 31, 2006) (motor home with defective engine, electrical system and windshield, among other components); Tenn. Farmers Mutual Insurance Co., 2002 WL 1332492 (vehicles destroyed by spontaneous combustion).

17. McLean, 2005 WL 2493479, at *6.

18. Memphis-Shelby County Airport Authority v. Illinois Paving Co., 2006 WL 3041492, at *2 (W.D. Tenn. Oct. 26, 2006).

19. See Marlin Financial & Leasing Corp. v. Nationwide Mut. Ins. Co., 157 S.W.3d 796, 808-09 (Tenn. Ct. App. 2004). Compare Memphis-Shelby County Airport Authority v. Illinois Paving Co., 2006 WL 2715335, at *3 (W.D. Tenn. Sept. 22, 2006) (Tenn. Code. Ann.  § 62-6-123, which prohibits hold harmless or indemnity agreements in construction contracts, will not override a contract term whereby one party promises to indemnify another for economic loss).

20. See Memphis-Shelby County Airport Authority v. Illinois Paving Co., 2006 WL 3041586 (W.D. Tenn. Oct. 26, 2006) (economic loss doctrine inapplicable to implied indemnification where plaintiff did not initiate the original suit). Courts in other jurisdictions have divided on whether the economic loss doctrine overrides common law indemnification. Compare Green Hills (USA) LLC v. Aaron Streit Inc., 361 F. Supp. 2d 81, 89 (E.D.N.Y. 2005) (yes) with In re Consolidated Vista Hills Retaining Wall Litig., 893 P.2d 438, 446-47 (N.M. 1995) (no).

21. Gibson v. Total Car Franchising Corporation, 223 F.R.D. 265, 272 (M.D. N.C. 2004) (analyzing Tennessee decisions).

22. See Dade Int'l Inc. v. Iverson, 9 F. Supp. 2d 858 (M.D. Tenn. 1998) (analyzed in PHG Technologies LLC v. St. John Companies Inc., 459 F. Supp. 2d 640, 644 n.2 (M.D. Tenn. 2006)).

23. Hansen, 2005 WL 3527162, at *11 (also implying all intentional torts override doctrine).

24. Corso Enterprises Inc., 2005 WL 2346986, at *6. See also John Martin Co. Inc. v. Morse/Diesel Inc., 819 S.W.2d 428, 431 (Tenn. 1991) (limiting economic loss doctrine to products liability claims); Trinity, 77 S.W.3d at 173-74 (doctrine applies only to the sale of goods under the UCC and not to construction contracts). But see Hansen, 2005 WL 3527162 (omitting any limitation to UCC in describing doctrine in tortious conversion case); Insur. Co. of North America v. Cease Elec. Inc., 688 N.W.2d 462, 467 (Wis. 2004) (rejecting doctrine for negligent provision of services, but noting American jurisdictions remain "hopelessly divided"). See generally Daniel Rapaport, et al., "Tort Killer: The Applicability of the Economic Loss Doctrine to Service Contracts," 20 Me. B.J. 100 (2005).

25. John Martin Co., 819 S.W.2d 428, 431, 433 (citing Restatement (Second) of Torts,  § 552); AmSouth Erectors LLC v. Skaggs Iron Works Inc., 2003 WL 878540, at **4-5 (Tenn. Ct. App. Aug. 5, 2003). See also Ritter, 912 S.W.2d at 131-33 (rule applies to both professional and nonprofessionals as defendants).
In products liability cases, the general rule is a plaintiff may not maintain a claim for purely economic losses absent contractual privity with the party chargeable for such damages. E.g., Memphis-Shelby County Airport Authority v. Illinois Paving Co., 2006 WL 304192, at *2 (W.D. Tenn. Oct. 26, 2006); Messer Griesheim Industries Inc. v. Cryotech of Kingsport Inc., 131 S.W.3d 457, 463 (Tenn. Ct. App. 2003). Qualifications exist for consumers suing manufacturers, see McLean, 2005 WL 2493479, and for actions based on property damage or personal injury, see Tenn. Code. Ann.  § 29-34-104.

26. Ritter, 912 S.W.2d at 132 n.5.

27. Trinity, 77 S.W.3d at 171 (analyzed in McLean, 2005 WL 2493479 at *5). See generally, Annot., "Strict Liability: Recovery for Damage to Product Alone," 74 A.L.R.4th 12 (1989 & Supp. 2007). Compare Sain v. ARA Mfg. Co., 660 S.W.2d 499 (Tenn. Ct. App. 1983) (plaintiff may elect to sue seller of goods in tort or contract for damage to items themselves where seller's agent negligently repaired the goods).

28. Messer, 131 S.W.3d at 465.

29. See King v. Hilton-Davis, 855 F.2d 1047, 1051 (3d Cir. 1988), cert. denied, 488 U.S.1030 (1989); Mid-South Milling Co. Inc. v. Loret Farms Inc., 521 S.W.2d 586, 588 (Tenn. 1975). Compare Ritter, 912 S.W.2d at 130 (distinction between economic loss and property damage "not always clear").

30. E. River, 476 U.S. at 870.

31. Tenn. Farmers, 2002 WL 1332492, at **5-6. See also In re Starlink, 212 F. Supp. 2d 828 (good analysis).

32. E. River, 476 U.S. at 867; Americoach Tours, 2005 WL 2335369, at *3. But see Corporate Air Fleet of Tennessee Inc. v. Gates Learjet Inc., 589 F. Supp. 1076 (M.D. Tenn. 1984) (court allowed damages for repair to an aircraft after it crashed upon landing) (criticized in Americoach Tours, 2005 WL 2335369, at *3 n.2).

33. Americoach Tours, 2005 WL 2335369, at **4-5.

34. E. River, 476 U.S. at 872-74.

35. See Tennessee Farmers, 2002 WL 1332492, at *2.

36. King, 855 F.2d at 1051-52.

37. Miller v. United States, 902 F.2d 573, 576 (7th Cir. 1990) (also citing confusing characterization of "economic loss") (Posner, J.).

38. Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875, 882 (1997).

39. Americoach Tours Inc., 2006 WL 2335369, at **2-4. But see A.Y. McCrary, 1985 WL 75663, at *3 (incorrectly ruling decreased value of an end product caused by defective component is economic loss unless the component causes physical damage to the end product, in which case the loss is property damage); Long v Monaco Coach Corp., 2006 WL 256040, at *5 (E.D. Tenn. Aug. 31, 2006) (same).

40. 520 U.S. 875 (1997).

41. 77 S.W.3d 173 n.1.

42. 131 S.W.3d 466.

43. See also Tennessee Farmers, 2002 WL 1332492, at **5-6 (adopting Saratoga Fishing's approach).

44. See Lamb v. MegaFlight Inc. 26 S.W.3d 627, 630-31 (Tenn. Ct. App. 2000) (stating elements).

45. 77 S.W.3d at 172-73.

46. 912 S.W.2d 128.

47. See Steven W. Feldman, 22 Tennessee Practice Series: Contract Law and Practice,  § 6:39 (2006 & Supp. 2007); see also Barton, note 9, supra, at 1812-25 (noting cases where negligent misrepresentation mirrored the fraudulent inducement exception).

48. 131 S.W.3d 457.

49. Hansen, 2005 WL 3527162, at *11.

50. Jarret v. Epperly, 896 F.2d 1013 (6th Cir. 1990).

51. See Gibson, 223 F.R.D. at 272 (analyzing Tennessee decisions).

52. Exprezit Convenience Stores LLC v. Transaction Tracking Technologies Inc., 2007 WL 307237, at *10 (M.D. Tenn. Jan. 29, 2007).

53. Kaloti, 699 N.W.2d at 217. See also Ralph C. Anzivino, "The Fraud in the Inducement Exception to the Economic Loss Doctrine," 90 Marq. L. Rev. 921 (2007) (strongly criticizing intermediate position); Steven Tourek, et al., "Bucking the Trend: The Uniform Commercial Code, the Economic Loss Doctrine, and Common Law Causes of Action for Fraud and Misrepresentation," 84 Iowa L. Rev. 875 (1999); Barton, note 9, supra (articles noting division of authority in American jurisdictions).

54. Cerabio LLC v. Wright Med. Tech., 410 F.3d 981, 989 n.4 (7th Cir. 2005).

55. Anzivino, note 53, at 922.

56. See also Seaton v. Lawson Chevrolet-Mazda Inc., 821 S.W.2d 137 (Tenn. 1991) (construing Tenn. Code. Ann.  § 47-2-721).

57. Denver Area Meat Cutters and Employers Pension Plan ex rel. Clayton Homes Inc. v. Clayton, 120 S.W.3d 841, 852 (Tenn. Ct. App. 2003) (fraud violates public policy); cf. Winstead v. First Tennessee Bank N.A, Memphis, 709 S.W.2d 627, 631 (Tenn. Ct. App. 1986) (where fraud fully appears it vitiates all contracts in which it enters).

58. See Tourek, note 53 (making similar argument). See also Huron Tool & Eng'g Co. v. Precision Consulting Servs., 532 N.W.2d 541, 546 (Mich. App. 1995) (acknowledging validity of this argument where the economic loss doctrine is limited to UCC contracts).

59. See Town of Alma, 10 P.3d at 1263-64.

60. See Moransais v. Heathman, 744 So.2d 973, 981 (Fla. 1999); HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So.2d 1238 (Fla.1996). But see Ritter, 912 S.W.2d at 132 (imposing doctrine in negligent misrepresentation case without mention of Tenn. Code Ann.  § 47-1-103).

61. See All-Tech Telecom, 174 F.3d at 867; Brass v. NCR Corp., 826 F. Supp. 1427, 1428 (S.D. Fla. 1993).

62. Tourek, note 53, supra, at 918-19 (analyzing Restatement (Third) of Torts, Products Liability,  § 9 cmt. e (1997)).

63. Kaloti, 699 N.W.2d at 221 (Abrahamson, C.J., concurring).


Steven W. Feldman STEVEN W. FELDMAN is an attorney-advisor with the U.S. Army Engineering and Support Center in Huntsville, Ala. He is a Tennessee Bar Association member, who received his bachelor’s degree from SUNY at Stony Brook and his law degree from Vanderbilt University. Feldman is the author of, Vols. 21 & 22, Tennessee Practice Series: Contract Law and Practice (2006 & Supp. 2007).