On August 24, 2015, in JMB Manufacturing, Inc. d/b/a Summit Forest Products Company v. Child Craft, LLC et al., the United States Court of Appeals for the Seventh Circuit reversed a $2.7 million judgment against an individual client and a corporate client of the firm. The court found that Indiana’s economic loss rule barred Child Craft, LLC’s (“Child Craft”) negligent misrepresentation claim against both JMB Manufacturing, Inc. d/b/a Summit Forest Products Company (“Summit Forest”) and its President, Ronald Bienias.
Summit Forest acted as a supplier of wood products to Child Craft. Specifically, Summit Forest was to purchase wood products from an Indonesian manufacturer and then resell those products to Child Craft. Shipments totaling approximately $90,000 of non-conforming goods were delivered to Child Craft. At some point thereafter, Child Craft decided to cease operations. Child Craft failed to pay some of the invoices sent to it by Summit Forest. Summit Forest filed suit in federal court in Indiana to obtain payment.
Child Craft filed a counterclaim against Summit Forest and Ronald Bienias individually, alleging, among other claims, negligent misrepresentation. The only claim that went to trial was the negligent misrepresentation claim, which was based on alleged misstatements Summit Forest and Bienias made to Child Craft regarding the products at issue and whether they would conform to the specifications set by Child Craft.
The firm did not represent Summit Forest or Bienias at either the liability or damages phases of the trial, in which the trial court found Bienias and Summit Forest liable for negligent misrepresentation and assessed $4.04 million in damages against them regarding the negligent misrepresentation claim. The firm was retained after the judgment was entered and immediately filed a motion to reconsider the judgment. The district court reconsidered its judgment on the negligent misrepresentation claim and reduced the amount of the judgment to $2.7 million.
On appeal, the Seventh Circuit reversed the district court’s judgment regarding the remaining $2.7 million, finding that Indiana’s economic loss rule barred the negligent misrepresentation claims against Summit Forest and Bienias. The court found that commercial parties can negotiate contract terms to allocate the risk of loss as a result of contractual breaches. As such, Indiana’s economic loss rule bars recovery in tort (including for negligent misrepresentation) for damages flowing from actions that constitute a breach of contract, such as the delivery of non-conforming goods. The court also found that although there are exceptions to the economic loss rule, none of them applied in this case.
The entire opinion of the Seventh Circuit can be found at the following link: http://media.ca7.uscourts.gov/cgi-bin/rssExec.pl?Submit=Display&Path=Y2015/D08-24/C:14-3306:J:Hamilton:aut:T:fnOp:N:1609494:S:0. Oral argument was also held regarding the case, which was argued by Michael P. Tomlinson. You can listen to the oral argument by clicking on the following link: http://media.ca7.uscourts.gov/sound/2015/nr.14-3306.14-3306_04_22_2015.mp3.