The Tennessee Supreme Court recently affirmed a Tennessee Court of Appeal’s decision that a corporation may not assert a damaged goods claim under the Tennessee Consumer Protection Act (TCPA). The Tennessee Supreme Court based its decision on a matter of statutory interpretation that a corporation is not a “person” and that equipment purchased for a commercial purpose are not “goods” within the meaning of the TCPA.
Background
The main parties to the lawsuit were a logistics company and a manufacturer of heavy-duty diesel engines used primarily to power the manufacturer’s commercial trucks.
The manufacturer developed an engine designed to satisfy 2010 Environmental Protection Act (EPA) standards requiring reduction of nitrogen oxide emissions. During development, the manufacturer ran several tests, some of which showed that the engine was successfully meeting expectations, while falling short in others. In particular, the manufacturer became aware through testing that the engine was prone to premature cracking of the cooling element and that this could result in leakage of coolant into other engine components. Nevertheless, the manufacturer proceeded with launching the engine into use beginning in September 2010.
In early 2011, the logistics company met with an independent truck and equipment dealer, which exclusively sold and serviced new and used trucks and equipment for the manufacturer at issue. The logistics company met with several of the manufacturer’s competitors who marketed their trucks as superior because the manufacturer’s technology was allegedly prone to overheating, which would strain and damage the engines’ major components.
The dealer and manufacturer representatives stated that the engines, including their cooling components, would last a million miles. After this and calculating a significant cost savings, the logistics company ordered 243 of the manufacturer’s trucks through the independent dealer, which amounted to a total of approximately thirty million dollars.
At some point in 2012, the logistics company began experiencing problems with a number of the trucks. The manufacturer repaired the trucks pursuant to the applicable warranties, and the logistics company accepted the trucks as fixed and returned them to service. In November 2012, representatives for the logistics company and the manufacturer met to discuss the logistics company’s significant reliability concerns about the trucks. The manufacturer’s representatives stated that they were aware of the problems identified by the logistics company and working to fix the issues. After continued truck failures, the logistics company ran an analysis that showed the number of truck issues were increasing. The logistics company provided this data to the manufacturer, but the situation was not resolved to the logistics company’s satisfaction.
The logistics company filed suit in Tennessee state court against both the manufacturer and the independent dealer alleging breach of express and implied warranties, breach of contract, negligent misrepresentation, fraud, and violation of the TCPA.
Trial court’s decision
After discovery, the trial court ruled in favor of the manufacturer and independent dealer on the breach of contract and breach of warranty claims, on the basis that the manufacturer fulfilled its obligations by repairing or replacing parts when presented by the logistics company. The trial court also found that the manufacturer’s warranties conspicuously disclaimed any implied warranties and that the logistics company had failed to present evidence that the manufacturer was contractually obligated to provide trucks “free from defects.” The trial court also ruled in favor of the manufacturer and independent dealer on the negligent misrepresentation claim finding that it was barred by the economic loss doctrine, which provides that 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.
The logistics company’s remaining claims for fraud and violation of the TCPA proceeded to trial. The judge ruled in favor of the independent dealer because it found that the logistics company failed to put on any proof showing that it made misrepresentations or failed to make any required disclosure of material facts. As to the manufacturer, the jury returned a verdict for the logistics company on both the fraud claim and the TCPA claim, awarding approximately $10.8 million in compensatory damages and $20 million in punitive damages. Conversely, the trial court also granted the independent dealer’s request for attorney fees and costs against the logistics company for approximately $330k on the grounds that the logistics company’s claims against it lacked a factual basis.
Court of Appeals’ decision
Both the logistics company and the manufacturer appealed the trial court’s decision to the Tennessee Court of Appeals. Among the issues raised by the manufacturer were that the economic loss doctrine barred the plaintiff’s fraud claim and that the TCPA claim failed because the trucks were not “goods” within the meaning of the statute. The logistics company, on the other hand, argued that the trial court improperly granted the independent dealer’s request for attorney fees against it and by ruling for the manufacturer on the breach of warranty claims. The Court of Appeals reversed in part and affirmed in part the ruling of the trial court. In ruling against the logistics company, the Court of Appeals held that the economic loss doctrine barred the fraud claim, that the trucks do not constitute “goods” under the TCPA, that the logistics company waived its argument for breach of warranty, and that the trial court properly awarded the attorney fees and costs of the independent dealer.
Supreme Court’s decision
The Tennessee Supreme Court affirmed the decision of the Court of Appeals wiping out the $30.8 million award that the logistics company had been awarded by the trial court. Central to its decision was the court’s analysis of the plain language of the TCPA. The court noted that the plain language prohibited “[r]epresenting that goods or services are of a particular standard, quality or grade, or that goods are of a particular style or model, if they are of another[.]” The TCPA defines the term “goods” as “any tangible chattels leased, bought, or otherwise obtained for use by an individual primarily for personal, family, or household purposes or a franchise, distributorship agreement, or similar business opportunity.”
Even though corporations or other entities satisfy the definition of a “person” in other parts of the TCPA, the court held that they are not “individuals” within the scope of the relevant portion of the act regarding “goods.” The Court further held that the trucks at issue were not “goods” within the meaning of the TCPA because the trucks were purchased for commercial purposes instead of “for . . . primarily . . . personal, family, or household purposes[.]” Therefore, the court held, even if the term “individual” was broad enough to encompass the logistics company within the meaning of the act, its TCPA claim would still fail as a matter of law.
As to the court’s decision regarding the logistics company’s fraud claim, it held that the economic loss doctrine applied and barred the claim. Specifically, the court held that the parties were sophisticated business entities that enjoyed equal bargaining power. By this ruling, the Supreme Court effectively ruled that it viewed the case as being one best addressed by contract law rather than tort law because the parties had the ability to fairly contract with each other and obtain contractual damages on the back end.
Takeaway
The Tennessee Supreme Court’s decision places an increased importance on contractual language in purchase agreements and renders the majority of business disputes subject primarily to contract law rather than tort law. TCPA claims are essentially no longer available to corporate plaintiffs when the claim relates to the purchase of goods for commercial purposes. Likewise, fraud claims will likely no longer be available when the only misrepresentations concern the quality or character of the goods sold. For these reasons, it is recommended that corporate entities work closely with their legal counsel and advisors when contracting for the purchase of goods to ensure that any damages that may arise will be adequately and properly provided for under the terms of the contractual agreement in the event of a breach.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.
