Tennessee Supreme Court Holds That Economic Loss Doctrine Bars Logistic Company’s Fraudulent Inducement Claim

August 2, 2021

In a unanimous opinion released today, the Tennessee Supreme Court 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.

In the case before the Court, Milan Supply Chain Solutions, Inc. purchased more than 200 commercial trucks that were manufactured by Navistar, Inc. and sold by Volunteer International, Inc. The trucks had MaxxForce engines, which were developed by Navistar to meet the Environmental Protection Agency (“EPA”) emissions standards that became effective in 2010. The trucks were subject to Navistar’s standard limited warranty, and Milan also purchased an optional service contract, which extended the warranty coverage on certain components. 

Milan began experiencing problems with some of the trucks, and Navistar made all repairs pursuant to the warranties, returning the trucks to service each time. However, the problems continued, and Milan’s representative felt that the trucks were not as reliable as Navistar and Volunteer had previously represented they would be. As a result, Milan filed suit, alleging a number of claims including fraud. The damages alleged were for economic losses incurred by having the trucks out of service for repairs and for the likely shorter lifespan of the trucks than Milan anticipated.

The trial court granted Navistar and Volunteer summary judgment on several claims and the case went to trial on the fraud claim, as well as a claim under the TCPA. The jury awarded Milan over $10,000,000 in compensatory damages, $20,000,000 in punitive damages, and attorney’s fees. 

The Court of Appeals reversed the judgments, determining that, because Milan’s fraud claims were based on economic loss alone and concerned the quality of the trucks, the fraud claims were barred by the economic loss doctrine under Tennessee law. The intermediate appellate court also held that Milan’s claim under the TCPA failed because the trucks at issue did not qualify as “goods” under the statute. The Supreme Court agreed to hear the case.

The Supreme Court affirmed the Court of Appeals on separate grounds. The Court declined to adopt a broad exception to the economic loss doctrine and instead concluded that, where a fraud claim seeks recovery of only economic losses and is premised solely on alleged misrepresentations or nondisclosures about the quality of the goods that are the subject of a contract between sophisticated commercial parties, the economic loss doctrine applies. The Court found the quality and reliability of the trucks were matters which the parties could, and actually did, contract. Applying the economic loss doctrine in these circumstances is consistent with its historical underpinnings and with its central purpose of preserving the boundary line between tort and contract law.

The Court also affirmed the intermediate appellate court’s judgment that Milan’s TCPA claim was barred as a matter of law because the trucks at issue were not “goods” as the term is defined under the TCPA. Therefore, the Court set aside the trial court’s award of attorney’s fees and costs to Milan against Navistar based on the TCPA.  

To read the Supreme Court’s opinion in Milan Supply Chain Solutions, Inc. f/k/a Milan Express, Inc. v. Navistar, Inc. et al., authored by Justice Cornelia A. Clark, go to the opinions section of TNCourts.gov.