- Syngenta suits brought for damage to the product itself, or when there is a contract between the farmer and Syngenta may be subject to various states’ economic loss rule
- However, the vast majority of Plaintiffs filing suit against Syngenta did not grow its seeds, and therefore are not subject to the economic loss rule
- States following the “products/contract rule” will see their economic loss doctrines play zero role in the Syngenta lawsuits
- Ten major corn-producing states following the “products/contract rule” include Colorado, Kansas, Kentucky, Minnesota, Michigan, Missouri, Nebraska, North Dakota, South Dakota and Wisconsin
The economic loss rule typically takes one of three forms:
Barring tort recovery when a product defect or failure causes damage to the product itself (resulting in only economic loss), but does not cause personal injury or damages to any other property.
Barring tort recovery for purely economic damages when there is a contract between or among the parties covering the subject matter of the dispute; and
Barring tort recovery (negligence) for any purely economic loss between strangers. In other words, the broad form of the rule enunciated above – barring negligence that causes only economic losses unaccompanied by personal injuries or property damages, even between strangers.
Here, Forms 1 and 2 above are referred to as the “products/contract rule” and form 3 as the “stranger/broad form rule.” Indeed, the products/contract rule has little or no effect on the Syngenta cases filed by farmers or grain elevators not buying seed from Syngenta because the plaintiffs are not suing for defects in Syngenta’s seed, nor is there any contractual relationship between the plaintiffs and Syngenta.
In two cases decided in 2000, Town of Alma v. AZCO Construction, Inc., 10 P.3d 1256, 1264 (Colo. 2000) and Grynberg v. Agri Tech, Inc., 10 P.3d 1267, 1269-70 (Colo. 2000), the Colorado Supreme Court adopted the “economic loss rule,” a rule of law that delineates the boundary between tort and contract law. According to the rule, “a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law.” Town of Alma, 10 P.3d at 1264. In adopting the rule, the Supreme Court recognized three policy considerations:
(1) to maintain a distinction between contract and tort law; (2) to enforce expectancy interests of the parties so that they can reliably allocate risks and costs during their bargaining; and (3) to encourage the parties to build the cost considerations into the contract because they will not be able to recover economic damages in tort.
BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 72 (Colo.2004). For a claim to escape the economic loss rule, the duty must arise independently of any contractual obligation. Town of Alma, 10 P.3d at 1263. Accordingly, Colorado follows the products/contract rule.
The Kansas Supreme Court recently took up the issue of the economic loss rule’s scope, specifically whether parties must have contractual privity for it to apply, and whether the doctrine extends to negligent misrepresentation claims. Rinehart v. Morton Buildings, Inc., 297 Kan. 926, 305 P.3d 622, 626 (2013). In addressing these questions, the Court explained the development of the rule:
The economic loss doctrine’s often-stated purpose is to preserve distinctions between tort and contract law. And as we have previously observed, the doctrine is difficult to define. In the most expansive terms, it is “a judicially created doctrine that sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses.” But a much narrower definition reveals itself when the doctrine is traced backed to its roots in product liability law, where it
emerged because courts became concerned the rise of implied warranties and strict liability for dangerous products would allow tort law to consume contract law. In its original form, the economic loss doctrine simply prohibited a commercial buyer of defective goods from suing in negligence or strict liability when the only injury consisted of damage to the goods themselves.
Id. at 627 (internal citations omitted). The Court declined to extend the rule to negligent misrepresentations claims, but left “for another day whether the doctrine should extend elsewhere.” Id. at 633.
Previously, the Court had adopted the rule in the commercial product liability setting, defective products in consumer transactions, and in the residential construction context. David v. Hett, 293 Kan. 679, 270 P.3d 1102, 1110 – 11 (2011). As such, to date, Kansas has only applied the rule in the products and contractual setting. Accordingly, without further guidance from its Supreme Court, Kansas currently follows the products/contract rule.
As the Kentucky Supreme Court recently held:
The “economic loss rule” prevents the commercial purchaser of a product from suing in tort to recover for economic losses arising from the malfunction of the product itself, recognizing that such damages must be recovered, if at all, pursuant to contract law.
Giddings & Lewis, Inc. v. Industrial Risk Insurers, 348 S.W.3d 729, 733 (Ky. 2011). The Court in Giddings officially adopted the economic loss rule in Kentucky, holding that “a manufacturer is a commercial relationship has not duty under either a negligence or strict products liability theory to prevent a product from injuring itself.” Id. at 738; see also Cincinnati Ins. Cos. v. Staggs & Fisher Cons. Engs., 2013 WL 1003543, at *2 (Ky. Ct. App. Mar. 15, 2013) (“[T]he rule prohibits purchasers of products from recovering purely economic damages under most tort theories.”); Rodrock v. Gumz, 2012 WL 1424501, at *2 (W.D. Ky. Apr. 24, 2012) (same). Accordingly, Kentucky follows the products/contract rule.
Minnesota has codified its economic loss rule. See M.S.A. § 604.101 (titled “Economic loss doctrine”). The statute abrogates all previous versions of the rule. Id. at Subd. 6 (“The economic loss doctrine applies to claims only as stated in this section.”). The statute applies only to a “claim by a buyer against a seller for harm caused by a defect in the goods sold or leased,” and prohibits a buyer from bringing a product defect tort claim against a seller for compensatory damages unless a defect in the goods sold or leased caused harm to the buyer’s tangible personal property other than the goods or to the buyer’s real property.” Id. at Subd. 2, 3. Accordingly, Minnesota’s economic loss rule is a statutory embodiment of the products/contract rule. George v. Uponor Corp., 988 F. Supp. 2d 1056, 1069 (D. Minn. 2013) (citing M.R.S. § 604.101) (“The economic loss rule prevents a plaintiff from bringing a tort claim where the damages sought consist only of damages to the product itself.”).
The Michigan Supreme Court formally adopted the economic loss doctrine in Neibarger v. Universal Coop., Inc., 439 Mich. 512, 486 N.W.2d 612 (1992), explaining that:
Where a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only “economic” losses. This doctrine hinges on a distinction drawn between transactions involving the sale of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts.
Id. at 520-521, 486 N.W.2d 612 (citations omitted). Since then, “the economic loss doctrine in Michigan has been applied in the context of various transactions for goods or products to bar recovery in tort when damages are recoverable under the UCC.” Quest Diagnostics Inc. v. MCI Worldcom, Inc., 254 Mich.App. 372, 656 N.W.2d 858, 862 (2002). Further, “a factor present in all cases in which Michigan courts have applied the economic loss doctrine is that the parties to the litigation were involved, either directly or indirectly, in a transaction for goods.” Id.; see also Huron Tool and Eng. Co. v. Precision Consulting Servs., Inc., 209 Mich.App. 365, 532 N.W.2d 541, 542 (1994) (“The economic loss doctrine provides that “[w]here a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only ‘economic’ losses.”); but see Insight Teleservices, Inc. v. Zip Mail Services, Inc., No. 14-11395, 2014 WL 7012653, at *10 (E.D. Mich. Dec. 11, 2014) (noting that some Michigan courts have applied the economic loss rule in a contractual scenario outside the sale of goods). Accordingly, Michigan follows the products/contract rule.
In Missouri, “[t]he economic loss doctrine prohibits a plaintiff from seeking to recover in tort for economic losses that are contractual in nature.” Captiva Lake Investments, LLC v. Ameristructure, Inc., 436 S.W.3d 619, 628 (Mo. App. E.D. 2014). “Recovery in tort for pure economic damages are only limited to cases where there is personal injury, damage to property other than that sold, or destruction of the property sold due to some violent occurrence.” Id.; see also Autry Morlan Chevrolet, Cadillac, Inc. v. RJF Agencies, Inc., 332 S.W.3d 184, 192 (Mo. App. S.D. 2010); Rockport Pharmacy, Inc. v. Digital Simplistics, Inc., 53, F.3d 195, 198 (8th Cir. 1995); Four Seasons Group, Inc. v. Thyssenkrupp Elevator Corp., No. 2:10-CV-C-04004, 2010 WL 1539815, at *1 (W.D. Mo. Apr. 9, 2010). Accordingly, Missouri follows the products/contract rule.
Judge Perry in the GMO Rice litigation held that the plaintiff’s negligence claims were not barred by the economic loss rule under Missouri law. In re Genetically Modified Rice Litig., 666 F. Supp. 2d 1004, 1016 – 17 (E.D. Mo. 2009). She first explained that Missouri’s economic loss rule bars tort recovery for damages to a defective products itself, as well as tort claims where the duty breached arises from a contract. Id. at 1016. She went on to explain, however, that “Missouri courts have rejected the economic loss doctrine, however, even in some cases where the parties had a contractual relationship, if the particular duty alleged to have been breached arose from the common law, as opposed to arising from the contract.” Id. (collecting cases).
In ruling that the economic loss rule did not apply, Judge Perry noted that the plaintiffs did not buy rice from Bayer, but alleged that they were injured by Bayer’s negligent contamination of the nationwide rice supply. She opined:
[Plaintiffs’] damages are not to any property that was the subject of a contract, and they are not claiming damage to any property that is alleged to be defective. Rather, they claim market losses and damage to other property, including equipment, land, and rice. Because they allege damage to other property, the doctrine does not apply. Additionally, . . . Missouri has traditionally allowed tort claims even where the only damages sought were economic. Missouri courts have never read the doctrine as broadly as Bayer urges here. Under the prevailing Missouri law, the plaintiffs’ common-law tort claims are not barred by the economic loss doctrine.
Id. at 1016 – 17 (collecting cases) (internal citations omitted). Judge Perry’s holding and reasoning would seem to apply equally to the negligence claims against Syngenta here.
After once deriding the economic loss doctrine as a “confusing morass” compared to the “ever-expanding, all-consuming alien life form portrayed in the 1958 B-movie classic The Blob” that could “consume much of tort law if left unchecked,” the Nebraska Supreme Court recently opined on the scope of the economic loss rule in that State:
[W]e hold that the economic loss doctrine precludes tort remedies only where the damages caused were limited to economic losses and where either (1) a defective product caused the damage or (2) the duty which was allegedly breached arose solely from the contractual relationship between the parties.
Lesiak v. Central Valley AG Coop., Inc., 283 Neb. 103, 808 N.W.2d 67, 81 (2012) (emphasis added). Accordingly, Nebraska follows the strict products/contract rule.
In North Dakota, the economic loss rule “bar[s] actions in tort when the only damage alleged is to the product itself.” Clarys v. Ford Motor Co., 1999 ND 72, 592 N.W.2d 573, 575 (1999); see also Everkrisp Vegetables Inc. v. Otto, 941 F. Supp. 2d 1132, 1136 (D.N.D. 2013) (“Under the economic loss doctrine in North Dakota, economic loss resulting from damage to a defective product, as distinguished from damage to other property or persons, may be recovered in a cause of action for breach of warranty or contract, but not in a tort action.”). Accordingly, North Dakota follows the products/contract rule.
In South Dakota, “[t]he economic loss doctrine  sets forth that regardless of whether a tort duty may exist between contracting parties, the actual duty one party owes to another for purely economic loss should be based exclusively on the contract to which they agreed and assigned their various risks.” Kreisers Inc. v. First Dakota Title Ltd. P’ship, 2014 S.D. 56, 852 N.W.2d 413, 421 (2014); see also Braun v. E.I. Du Pont De Nemours and Co., No. Civ.04-1007, 2006 WL 2900552, at *2 (D.S.D. Feb. 7, 2006) (“The economic loss rule holds that economic losses arising out of commercial transactions are not recoverable under tort theories but are instead limited to the commercial theories found in the Uniform Commercial Code.”). As the South Dakota Supreme Court has explained:
The significance of the doctrine is that it “precludes parties under certain circumstances from eschewing the more limited contract remedies and seeking tort remedies.” The prohibition against tort actions to recover solely economic damages for those in contractual privity is designed to prevent parties to a contract from circumventing the allocation of losses set forth in the contract by bringing an action for economic loss in tort. The “doctrine draws a legal line between contract and tort liability that forbids tort compensation for ‘certain types of foreseeable, negligently caused, financial injury.’ ”
Id. (internal citations omitted).
South Dakota follows a two step analysis in applying its economic loss rule: (1) was the transaction a sales transaction within the scope of the UCC; and (2) if so, are the losses claimed under the negligence cause of action recoverable in tort or are the UCC provisions exclusive? Diamond Surface, Inc. v. State Cement Plant Comm., 1998 SD 97, 583 N.W.2d 155, 161 (1998). Finally, South Dakota defines “economic loss” as “that loss resulting from the failure of the product to perform to the level expected by the buyer and the consequential losses resulting from the buyer’s inability to make use of the ineffective product, such as lost profits.” Id. Accordingly, South Dakota follows the products/contract rule.
As the Wisconsin Supreme Court has explained:
The economic loss doctrine is a judicially created doctrine intended to preserve the boundary between tort and contract. To illustrate, the commercial purchaser of a product may not recover from the manufacturer or seller, under negligence or strict liability theories, for solely economic losses arising from that product. This is especially true when a warranty given by the manufacturer specifically precludes the recovery of such damages. In Wisconsin, the economic loss doctrine is based on three fundamental premises. It seeks “(1) to maintain the fundamental distinction between tort law and contract law; (2) to protect commercial parties’ freedom to allocate economic risk by contract; and (3) to encourage the party best situated to assess the risk of economic loss, [that is,] the commercial purchaser, to assume, allocate, or insure against that risk.”
Grams v. Milk Prods., Inc., 283 Wis.2d 511, 699 N.W.2d 167, 171 (2005) (internal citations omitted); see also Tietsworth v. Harley-Davidson, Inc., 270 Wis.2d 146, 677 N.W.2d 233, 241 (2004) (“[T]he economic loss doctrine precludes recovery in tort for economic losses resulting from the failure of a product to live up to a contacting party’s expectations.”). Accordingly, Wisconsin follows the products/contract rule.
This memo reflects only the cursory research concerning different states’ laws and should not be used as a replacement for in-depth research by attorneys licensed in each such respective state.
Mikal C. Watts
WATTS GUERRA, LLP
Four Dominion Drive, Bldg. Three, Suite 100
San Antonio, Texas 78257
* This information is provided to supply relevant information concerning the GMO corn lawsuit, and should not be received as legal advice. Legal advice is only given to persons or entities with whom Watts Guerra LLP has established an attorney-client relationship. If you have another lawyer in the GMO Corn lawsuit, you should consult with your own attorney, and rely upon his or her advice, rather than the information contained herein.