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February 28, 2020

Economic Loss Doctrine

Case: Milan Supply Chain Solutions, Inc. f/k/a Milan Express, Inc. v. Navistar, Inc., et al.

Facts: Plaintiff sued Defendant in a commercial dispute pertaining to the quality of trucks purchased by the Plaintiff pursuant to a contract. The lawsuit alleged breach of contract, fraud, and violation of the Consumer Protection Act. A jury held for the plaintiff and awarded damages.

Appellate decision: The intermediate court reversed, holding that the Economic Loss Doctrine barred Plaintiff’s fraud claims. 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. . . . 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.” While some jurisdictions have recognized an exception in cases of fraud, the court held “that where the alleged fraud, as in this case, relates to the quality of goods sold, the economic loss doctrine is a bar and any remedies must be pursued in contract/warranty law.

Review granted: January 16, 2020.

Prediction: Ben thinks the Supreme Court will affirm the reversal and recognize the applicability of the Economic Loss Doctrine in this situation.

Result: On August 2, 2021, the Supreme Court unanimously ruled that the economic loss doctrine applies in fraud actions where the parties are sophisticated commercial entities and the claim is based solely on alleged misrepresentations or nondisclosures about the quality of the goods purchased through a contract. The economic loss doctrine states parties cannot recover under civil tort law for purely economic damages suffered under a contract and instead must look to the contract itself for remedies. In addition, the ruling addressed the application of the Tennessee Consumer Protection Act to commercial transactions.