How Tennessee Courts Have Curtailed the Ability to Recover Tort Damages Between Contracting Parties

Posted on January 12th, 2022 by Isabella M. SimonIsabella Simon

In Milan Supply Chain Sols., Inc. v. Navistar, Inc., the Tennessee Supreme Court recently addressed uncharted waters in Tennessee’s application of the economic loss doctrine (“ELD”). The ELD attempts to keep parties from getting more than they bargain for in their original agreements. States take various stances; some applying a stricter interpretation barring all tort claims that appear alongside claims for breach of contract, and others allowing tort recovery where there is evidence of fraudulent inducement into a contract. Tennessee courts have previously held that Tennessee does not recognize an exception to the ELD under which recovery in tort is possible for damage to the defective product itself when the defect renders the product unreasonably dangerous and causes the damage by means of a sudden calamitous event, but, before Milan, there has not been any guidance whether the ELD bars claims for fraud.

Milan Supply Chain Sols., Inc. is a motor carrier that contracted with manufacturer Navistar for the purchase of over two hundred trucks. Milan alleged that Navistar made several misrepresentations concerning the trucks and brought numerous claims including a claim for breach of contract and fraud. After trial and making its way up to the Tennessee Supreme Court, the Court, in surveying the law of other jurisdictions, attempted to strike a balance between the various interpretations of the ELD; not entirely barring claims of fraud but limiting them where the misrepresentations by the dishonest party go beyond statements about the quality or the character of the goods sold. In such a case, the Milan Court emphasized the importance of considering the sophistication of parties engaging in contract negotiations, and accentuated the freedom that parties have to negotiate warranties to account for possible defects prior to entering into a contract. The ruling attempted to strike a balance between important tenants of Tennessee law, “freedom of contract and abhorrence of fraud.”

While this was applied in the context of a products liability case, there is no reason that this interpretation could not be applied into other types of transactions. Where there is an absence of personal injury, and the sole injury is economic loss, contract law provides parties with ample avenues to pursue remedies. Even if a dangerous product has a high likelihood of causing harm, without a showing of personal injury, buyers are still able to pursue remedies in contract, as underscored by Milan. Conversely, this reasoning could limit buyers and deter future litigants from seeking non-contractual damages for truly fraudulent situations that occur alongside a breach of contract. Even so, the decision in Milan has set the tone, and Tennessee litigants may press for further application of the ELD outside the realm of products and goods to preventing parties from maneuvering around contractual language in search of tort remedies. While Milan may be Tennessee’s first instance interpreting fraud claims and the ELD, it will certainly not be the last.