Grynberg v. Agri Tech, Inc.

• Decision Date: 18 September 2000
• Docket Number: No. 99SC399.,99SC399.
• Citation: 10 P.3d 1267
• Parties: Jack J. GRYNBERG; Celeste C. Grynberg; Rachel S. Grynberg; Stephen M. Grynberg; and Miriam Z. Grynberg, Petitioners, v. AGRI TECH, INC., a Colorado corporation; Morgan County Feeders, Inc., a Colorado corporation; A T Cattle Co. Ltd., a Colorado limited partnership; Gary A. Weisbart; Simon Chilewich; and Chilewich Sons & Co., a New York partnership, Respondents.
• Court: Colorado Supreme Court

10 P.3d 1267

Jack J. GRYNBERG; Celeste C. Grynberg; Rachel S. Grynberg; Stephen M. Grynberg; and Miriam Z. Grynberg, Petitioners, v. AGRI TECH, INC., a Colorado corporation; Morgan County Feeders, Inc., a Colorado corporation; A T Cattle Co. Ltd., a Colorado limited partnership; Gary A. Weisbart; Simon Chilewich; and Chilewich Sons & Co., a New York partnership, Respondents.

No. 99SC399.

Supreme Court of Colorado, En Banc.

September 18, 2000.

Reiman & Bayaz, P.C., Jeff Reiman, Marcie Bayaz, Debra Asimus, Denver, Colorado, Attorneys for Petitioners.

Cage & North, P.C., Jack Berryhill, Rita J. Bonessa, Denver, Colorado, Attorneys for Respondents.

Walter H. Sargent, A Professional Corporation, Walter H. Sargent, Colorado Springs, Colorado, Attorney for Amicus Curiae Colorado Trial Lawyers Association.

Isaacson, Rosenbaum, Woods & Levy, P.C., Frederick B. Skillern, Denver, Colorado, Attorneys for Amicus Curiae Colorado Defense Lawyers Association.

Justice RICE delivered the Opinion of the Court.

We granted certiorari to review the court of appeals' judgment in Grynberg v. Agri Tech, Inc., 985 P.2d 59 (Colo.App.1999). Petitioners (collectively "Grynbergs") filed suit against Respondents, asserting a number of contract and tort claims arising out of a cattle investment program. The Grynbergs alleged that the investment program was designed and run improperly, causing them to receive less than a specified rate of return on their investment. After a trial, the jury found in favor of the Grynbergs on a breach of fiduciary duty claim and also on a negligence claim. Although they awarded no damages on the breach of fiduciary duty claim, the jury awarded $600,000 on the negligence claim. The court of appeals reversed the judgment on the negligence claim, holding that the economic loss rule barred the assertion of the claim. Upon review, we affirm the judgment of the court of appeals.

I. FACTS AND PROCEDURAL HISTORY

In 1985, the Grynbergs invested in a cattle program administered by Respondents. Respondent Agri Tech, Inc. ("Agri Tech") was in the business of feeding cattle owned by its customers. Respondent A T Cattle Company, was an affiliate of Agri Tech, which was in the business of importing cattle from Mexico for Agri Tech and its customers. Respondent Morgan County Feeders was also an affiliate of Agri Tech, whose business was to lend money to Agri Tech's customers to cover the cost of purchasing, caring for, and feeding the cattle (Agri Tech did not require its customers to use the services of Morgan County Feeders).

Beginning in 1985, and continuing for five years, the Grynbergs invested approximately $95 million in 135,000 cattle using the services of Agri Tech and its affiliates. At the beginning of the relationship, the parties were operating without a written contract.¹ In 1987, the parties reduced their relationship to writing. The Grynbergs each signed custom feeding agreements with Agri Tech which provided that Agri Tech would "accept and care for cattle belonging to [the Grynbergs] in accordance with the customary standards of care, responsibility, and good animal husbandry." (Custom Feeding Agreement ¶ 4.)

Over the course of the five year period, the Grynbergs became displeased with their investment returns. The Grynbergs ultimately sued Respondents, asserting both contract and tort claims. At trial, five claims were submitted to the jury: breach of fiduciary duty, fraud, conspiracy, breach of contract, and negligence. The jury found in favor of the Grynbergs on their negligence claim and their breach of fiduciary duty claim. However, the jury awarded damages for the negligence claim only. The damage award of $600,000 was subsequently reduced by the trial court to $360,000 to account for the jury's finding of the Grynbergs' comparative negligence. The jury found in favor of Respondents on all other claims.

Respondents appealed the judgment and the court of appeals reversed the judgment on the negligence claim, finding that the economic loss rule barred the assertion of this claim. The court concluded that Respondents breached no duty independent of their contractual obligations and, thus, the Grynbergs' claim for negligence could not stand.

We granted the Grynbergs' petition for writ of certiorari to review the judgment of the court of appeals.²

II. ANALYSIS

The Grynbergs contend that the court of appeals erred in applying the economic loss rule to bar their negligence claim. This case, along with Town of Alma v. AZCO Construction, Inc., 10 P.3d 1256 (Colo. 2000), presents an opportunity for us to address the status of the economic loss rule in Colorado. With our judgment today in Town of Alma and in the instant case, we now expressly adopt the economic loss rule in Colorado. For the reasons stated below, we conclude that it is appropriate to apply the rule in this case to bar the Grynbergs' negligence claim.

A. Economic Loss Rule

As we discussed in Town of Alma, id. at 1259, the economic loss rule emerged largely from the development of products liability jurisprudence. Although its initial development was in direct response to the emergence of strict liability in tort theories, its application is now much broader as it serves today to maintain the boundary between contract law and tort law. See id.

The proper focus in an analysis under the economic loss rule is on the source of the duties alleged to have been breached. Thus, our formulation of the economic loss rule is that a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law.

The Grynbergs rely on several of our cases for the argument that our precedent dictates that they should be allowed to proceed on both negligence and contract theories. We engaged in a discussion of three of these cases, Lembke Plumbing and Heating v. Hayutin, 148 Colo. 334, 366 P.2d 673 (1961), Metropolitan Gas Repair Serv., Inc. v. Kulik, 621 P.2d 313 (Colo.1980), and Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041 (Colo.1983), in Town of Alma, 10 P.3d at 1265-1266. As we discussed in Town of Alma, our holding in each of these cases followed from our determination that the defendants breached a duty of care independent of any contractual obligations to the plaintiffs.

Our holdings in these cases do not support the Grynbergs' contention that they should be permitted to maintain their negligence claim. Unlike these cases, the Grynbergs have not shown that any duty independent of the oral and written contracts was breached. As the court of appeals noted, the Grynbergs are seeking the same relief in both their contract and negligence claims: damages for the alleged failure of Respondents to properly manage the cattle investment program. The duties allegedly breached by Respondents were created by the contracts. The contracts between the parties imposed a duty of care on Respondents to care for the cattle according to the customary standards of the industry. The feeding agreement between the parties specifically requires Agri Tech to care for the Grynbergs' cattle "in accordance with the customary standards of care, responsibility, and good animal husbandry." (Custom Feeding Agreement ¶ 4). The duty of care is created by, and completely contained in, the contractual provisions.

Therefore, absent the duties imposed by the contractual relationship between the parties, there is no independent duty of care owed to the Grynbergs by Respondents. The Grynbergs assert that they are relying on Agri Tech's common law duty to design and implement the Grynbergs' investment program with the relevant standard of care. However, they cite no support for the existence of this common law duty of care, nor are we aware of any cases where we have recognized such a duty in this context. Moreover, the Grynbergs fail to explain how a "common law duty" would impose a different duty of care on Respondents than that already provided for by contract. This is a classic example of a case where the plaintiffs are seeking to recover damages for the loss of their bargain with defendants these are pure economic loss damages based on disappointed expectations. An action to recover damages for the loss of a bargain is the exclusive province of contract law. See Detroit Edison Co. v. NABCO, Inc., 35 F.3d 236, 239 (6th Cir.1994)

("The essence of contract law is the bargain: parties of equivalent bargaining power negotiate the terms of the transaction and each is then entitled to the benefit of the bargain.").

The Grynbergs also rely on our decision in Cooley v. Big Horn Harvestore Systems, Inc., 813 P.2d 736 (Colo.1991). In Cooley, the plaintiffs were dairy farmers who contracted with Big Horn Harvestore Systems ("Big Horn") to purchase a Harvestore automated grain storage and distribution system for use in their dairy operation. See id. at 738. After the Cooleys began to feed their herd with grain stored in the Harvestore system, the health of the herd began to deteriorate. See id. at 739. Big Horn subsequently undertook to provide the Cooleys with advice and recommendations on various nutritional programs. See id. The health of the herd continued to deteriorate and the Cooleys sued the defendants, asserting both contract and negligence claims. See id. After the Cooleys prevailed on both the contract and negligence claims at trial, Big Horn argued on appeal that the contract provided the exclusive remedy, relying on a contractual provision stating that the express warranty provided in the contract was the exclusive remedy and that the buyer waived all other remedies. See id. at 748. We rejected Big Horn's argument by observing that the exclusive remedy provision applied only to duties that were created by the contract. See id. at 749. We noted that the contract for the purchase of the Harvestore system only required Big Horn to "install a foundation and...