Day on Torts
Where plaintiff brought a tort action against defendant based on defective products made pursuant to a contract between the parties, dismissal based on the economic loss doctrine was affirmed.
In Vidafuel, Inc. v. Kerry, Inc., No. M2024-00041-COA-R3-CV (Tenn. Ct. App. Nov. 4, 2024), the plaintiff developed and distributed wellness protein drinks. The plaintiff contracted with the defendant to manufacture these drinks, and problems began early in the relationship. Samples provided were not adequate, shipments that went out received customer complaints and had to be pulled, and the defendant failed to ever create a product that met the plaintiff’s quality requirements.
Plaintiff filed this suit asserting claims for negligent or intentional misrepresentation, deceit/fraudulent inducement, and violations of the Tennessee Consumer Protection Act (“TCPA”). The plaintiff argued that the claims were not based on the contract but were instead based on the defendant’s representations about its ability to manufacture the product. The defendant filed a motion to dismiss, arguing that the economic loss doctrine barred the plaintiff’s tort claims and that the TCPA claim was time-barred. The trial court agreed, dismissing the claims, and the Court of Appeals affirmed.
The economic loss doctrine “operates to preclude contracting parties from pursuing tort recovery for purely economic or commercial losses associated with the contract relationship.” (internal citation omitted). In Tennessee, this doctrine is “limited to products liability cases” and does not apply to services contracts. The plaintiff argued that the contract at issue was a services contract, as it contracted for the defendant to manufacture certain drinks. The Court of Appeals rejected this assertion, finding that the complaint was “littered with assertions concerning [defendant’s] performance under the [contract], its delivery of the Products in a non-conforming state, and associated damages to [plaintiff] as a result.”
The Court wrote:
[Plaintiff’s attempt to nominally untether the connection between its claimed damages and the Products/[defendant’s] performance under the [contract] is simply not tenable. As [defendant] offered in support of its motion to dismiss in the trial court: ‘The entire thesis of the Amended Complaint is that [defendant] supplied [plaintiff] with defective Products which caused [plaintiff] to lose customers and sales. That claim fits squarely within the definition of products liability.’
Plaintiff emphasized that its claims related to representations made by defendant, but the Court rejected this distinction. The Court found that all the alleged misrepresentations “implicate the subject matter of the parties’ contract and expected performance under it.” Therefore, “because the amended complaint indicates that this is a products liability case between two sophisticated business entities that entered into a contract, involves an attempt to recover only economic losses, and involves tort claims that concern the subject matter of the contract,” dismissal pursuant to the economic loss doctrine was appropriate.
The Court also affirmed dismissal of the TCPA claim based on the statute of limitations. TCPA claims are subject to a one-year statute of limitations, and the allegations in the complaint showed that plaintiff knew about major problems with the products being produced well over a year before the complaint was filed. Accordingly, the the trial court’s dismissal of this case was affirmed.
This opinion contains a good analysis of how the economic loss doctrine applies in Tennessee, and it is an important read for anyone litigating a case that may be affected by this doctrine.
This opinion was released 2.5 months after oral arguments in this case.