Economic Loss Doctrine Prevents Double-Dipping in Damages

Sometimes I use this blog as a notepad for obscure legal theories that I’m going to use later.

Like this one, on the “economic loss doctrine.”

If you have a plaintiff who sues you both for breach of contract damages and for tort damages arising out of the same transaction, you may be able to get the tort claims dismissed, per a Tennessee Court of Appeals opinion released yesterday.

The case is Milan Supply Chain Solutions, Inc. v. Navistar Inc. et. al,  W201800084COAR3CV,  2019 WL 3812483 (Tenn. App. Aug. 14, 2019), and it discussed this rule, known as the “economic loss doctrine.” The theory was “created by the courts to avoid the ‘coming collision between warranty and contract on the one hand and the torts of strict liability, negligence, fraud and misrepresentation on the other’.”

The heart of the concept is stated as:

[C]ontract and tort are separate and distinct areas of the law that provide separate and distinct remedies. A party who enters into a contract which contains terms that limit recovery in the event of a breach [is] typically unable to circumvent such provisions by alleging a tort occurred as well. The warranty or contract’s terms and conditions set forth the rules governing the relationship, and tort law does not expand the remedies of the contract beyond the agreed-to terms. Absent personal injury or damage to other property, the sole remedy lies in contract.

The theory is that a party to a contract is free to contract for the terms of their purchase agreement, and this doctrine protects the right to allocate risk in a transaction.

A good “real life” example of this would be where a party limits the damages for breach in a real estate transaction, such as by providing that damages are limited to a return of the deposit to the buyer. Under this theory, the buyer would not be able to, later, subvert that contract provision by suing for damages in tort.

341: Lawyers Doing Good Matters

My law firm recently met with a public relations group, who gave us the pitch on all the things they could do for us, including beefing up our presence on LinkedIn, posting special interest stories on our corporate Facebook page, and more Twitter updates.

After this week of front page stories and national press, I’m not sure we need too much help. Here’s a look at the stories we’ve been involved in this week…

Continue reading “341: Lawyers Doing Good Matters”

Tennessee Legislature overreacted when they repealed Tenn. Code Ann. § 66-21-108.

If you’ve spent any time on this blog, you’ve know all about Tennessee’s wrongful lien statute, Tenn. Code Ann. § 66-21-108.

It’s a fairly new statute, enacted on May 21, 2018, and I’ve called it the scariest statute I’ve seen. That’s because the statute imposes broad (and automatic) penalties on lien claimants who lose a lien challenge, with the penalties being so harsh that it could have a chilling effect on lien claims.

So, having said that, I was glad to see that the Tennessee Legislature was going to walk back some of those automatic penalties with some proposed amendments to the statute for 2019. Specially, the changes to 66-21-108 would impose a “malice” requirement and would change the “shall recover” language to “may recover.” These changes would protect the mechanic’s liens with justifiable claims, but would preserve claims against those creditors who are looking for undue (and illegal) advantage.

In the end, I was glad to see some correction to the statute, but, candidly, I also thought that the changes took basically all the teeth out of the statute. From my time fighting in Bankruptcy Court, I know that “malice” isn’t an easy concept to prove.

I also know that some creditors’ philosophy is “when in doubt, why not file a lien”? Under the old statute, if those creditors weren’t careful, they would definitely get hit with damages. I’ve seen a lot of bad liens in my time, and this statute provided a remedy that homeowners legitimately needed.

So, it was with a lot of disappointment that I’ve discovered that, rather than amending the statute, the 2019 Legislature just repealed the entire statute.

The statute was designed to solve a very real problem. As it stands right now, there are no real remedies for a property owner to recover costs and expenses when challenging a wrongful lien on their property. As a result, there’s no real disincentive to keep a creditor from recording a questionable lien.

At some point, the cost, expense, and hassle of fighting over an invalid lien isn’t worth the fight. Lien creditors know that they get incredible leverage when they record a lien, and, under now existing law, there’s not much risk to them.

Honestly, I’d rather have the original version of the statute (which made lien claimants really evaluate their claims and think twice before encumbering a person’s property) than no statute at all.