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James N. Rhodes, J.D.
ConstructionRisk, LLC

A painting contractor attempted to bring an action against a commercial paint supplier for losses because the supplier’s improper product recommendation caused the contractor to have to remove the paint and reperform the work.  The contractor’s losses were only “economic” because the damages were to the diminished value of the paint purchased, not personal injury or damage to other property.  Applying Missouri law, the federal appeals court held that the “economic loss doctrine” barred the claim because the plaintiff’s remedies for economic losses in a commercial transaction were properly under applicable contract and warranty law, as opposed to tort law.  The plaintiff’s attempt to avoid the effect of the “economic loss doctrine” by bringing the case under the legal theory of “negligent misrepresentation,” as opposed to a product defect claim, was ineffective.   Dannix Painting, LLC v. Sherwin-Williams Co., 732 F.3d 902 (8th Cir. 2013).

A commercial painting contractor, Dannix Painting, LLC, was contracted to paint buildings at an Air Force base in Florida.  The contractor attempted to use two different types of Sherman-Williams paint, but ran into problems with each type.  A Sherwin-Williams representative then recommended the contractor to use a third variety, which the contractor subsequently used on interior and exterior surfaces at the Air Force base.  The contractor alleges that the paint “delaminated,” in that it did not properly adhere to the surfaces that it was used on.  The contractor sued Sherwin-Williams in Missouri state court alleging that it suffered a financial loss because it had to strip the defective paint and reperform the work with a different product.  The case was subsequently removed to federal district court, applying Missouri law.  

The basis for the contractor’s suit was the alleged “negligent misrepresentation” by Sherwin-Williams in recommending the third product, i.e. that Sherwin-Williams “failed to exercise reasonable care or competence in investigating the accuracy of its recommendation” of the product.  Sherwin-Williams moved to dismiss the case, arguing that the negligent misrepresentation cause of action was barred by the “economic loss doctrine” under Missouri law.  The district court agreed that the action was barred, and the contractor appealed the decision to U.S. Court of Appeals for the Eighth Circuit.

To understand the “economic loss doctrine,” one must first consider what an “economic” or “commercial” loss is, in comparison to the typical damages for injury or property damage sought in a negligence action.  The court explained that “[d]istinguished from harm to person or damage to property, economic or commercial loss includes cost of repair and replacement of defective property which is the subject of the transaction, as well as commercial loss for inadequate value and consequent loss of profits or use.”  The economic loss doctrine prohibits a buyer “from seeking to recover in tort for economic losses that are contractual in nature.”  Summing it up, the court stated that “in essence, the economic loss, or commercial loss, doctrine denies a remedy in tort to a party whose complaint is rooted in disappointed contractual or commercial expectations.”  The doctrine is said to protect the integrity of the commercial bargaining process, preventing tort law “from altering the allocation of costs and risks negotiated by the parties.”

The court noted that Missouri has few exceptions to the economic loss doctrine, such as professional negligence and breach of fiduciary duties.  However, the court stated that under Missouri law, “remedies for economic loss sustained by reason of damage or to defects in products sold are limited to those under the warranty provisions of the [Uniform Commercial Code].”

The contractor argued that it was not making a direct product defect claim for economic loss, which it concedes would be barred; instead, the contractor points to Sherwin-Williams’ flawed recommendation, rather than the product itself, as the source of its economic loss.  The court noted that plaintiffs in other states have also attempted to bypass the traditional application of the economic loss doctrine by styling their claims as “negligent misrepresentation,” as opposed to negligence or strict liability for a defective product.  But the appeals court upheld the district court’s dismissal because it found no authority in Missouri law to extend the exceptions of the economic loss doctrine to include negligent misrepresentation.

Several states have significantly modified or weakened the economic loss doctrine in recent years, and one should be cognizant of the rule’s application in your state.  In states that apply the traditional rule, plaintiffs have sought ways to avoid the sometimes harsh effects, such as using the theory of negligent misrepresentation.   However, here the court held that the economic loss doctrine bars negligent misrepresentation claims between commercial parties under Missouri law.

 

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