Commercial adversaries are often tempted to transform breach of contract or warranty matters into negligence or negligent misrepresentation claims. Or fraud or other intentional tort claims. The lure of a more flexible claim before a jury can be hard to resist. Or the governing contract may have limitation of liability restrictions that make warranty and contractual claims unavailing. Nevertheless, The Eighth Circuit, interpreting Missouri law, strongly reaffirmed its view that tort claims cannot be substituted for matters of contractual risk allocation unless very narrow exceptions apply.
Dannix Painting, LLC v. Sherwin-Williams Company, handed down on October 21, 2013, involved a claim by a painting contractor, Dannix, that Sherwin-Williams negligently misrepresented the suitability of its paint products for a particular project. According to Dannix, Sherwin-Williams recommended three paint product formulations that each failed in succession, causing substantial financial harm.
Chief Judge Catherine D. Perry of the United States District Court for the Eastern District of Missouri dismissed Dannix’s sole claim—for negligent misrepresentation—as barred by the economic loss doctrine. Judge Perry found that Dannix’s claim did not meet any of the recognized exceptions (fiduciary relationship, professional services, or violation of public duty) and declined to fashion a new one.
The Eighth Circuit panel unanimously affirmed. This is hardly surprising as the Missouri Supreme Court recently held: “Under Missouri law, remedies for economic loss sustained by reason of damage to or defects in products sold are limited to those under the warranty provisions of the UCC.” Renaissance Leasing, LLC v. Vermeer Mfg. co., 322 S.W. 3d 112, 130-31 (Mo. 2010) (en banc).
But Dannix, as others have tried, placed the focus on the bad advice versus the defect in the product itself in a gambit to avoid application of the economic loss rule to a negligent misrepresentation claim. The Court rejected the product recommendation angle, because it proves too much. Every product recommendation case involves a faulty representation that the product was suitable, which is a matter of contractual allocation of risk or breach of warranty concern. “This is precisely the type of tort claim by a disappointed commercial buyer that the economic loss doctrine prohibits.” The contract or warranty laws (normally the UCC) determine the responsibilities of a product seller whose product fails to function as intended.
The Eighth Circuit opinion provides an excellent primer for lawyers on the economic loss doctrine as well as its history and breadth under Missouri law. Buyers and sellers? Beware—mind your contracts carefully.