Dannix Painting, LLC v. Sherwin-Williams Co.

• Decision Date: 21 October 2013
• Docket Number: No. 13–1025.,13–1025.
• Citation: 732 F.3d 902
• Parties: DANNIX PAINTING, LLC, Plaintiff–Appellant v. SHERWIN–WILLIAMS COMPANY, Defendant–Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

732 F.3d 902

DANNIX PAINTING, LLC, Plaintiff–Appellant

v.SHERWIN–WILLIAMS COMPANY, Defendant–Appellee.

No. 13–1025.

United States Court of Appeals, Eighth Circuit.

Submitted: Sept. 25, 2013.

Filed: Oct. 21, 2013.

Jill R. Rembusch, argued and on the brief, Saint Louis, MO, for Plaintiff–Appellant.

Robert H. Eddy, argued, Cleveland, OH (Michael Joseph Pike, on the brief, Cleveland, OH), for Defendant–Appellee.

Before RILEY, Chief Judge, BRIGHT and BYE, Circuit Judges.

RILEY, Chief Judge.

In this diversity case, see28 U.S.C. § 1332(a), Dannix Painting, LLC (Dannix), a Mississippi limited liability company whose sole member is a Missouri resident, appeals the dismissal of its Missouri tort action against the Sherwin–Williams Company (SWC), an Ohio corporation. Dannix alleged SWC negligently misrepresented a certain paint product SWC sold was appropriate for a particular painting project. Dannix argues the district court ¹ erroneously concluded Dannix failed to state a claim because Missouri's ² economic loss doctrine barred Dannix's only cause of action. We affirm.

I. BACKGROUND

Dannix, a commercial painting contractor, used a product manufactured by SWC to paint some buildings at Eglin Air Force Base in Florida, but the finish was defective. When Dannix sought assistance from SWC, SWC recommended an alternative product. When that product proved unacceptable due to noxious odors, an SWC employee suggested a third product. On the SWC employee's recommendation, Dannix used the third product on both interior and exterior surfaces, complying with all the manufacturer's recommendations. This product also failed. The paint “delaminated” ³ on both interior and exterior surfaces, causing Dannix to suffer financial loss when Dannix had to remove the defective paint and redo the work.

On August 13, 2012, Dannix sued SWC in Missouri state court for negligent misrepresentation in recommending the third product. Dannix asserted SWC “failed to exercise reasonable care or competence in investigating the accuracy of its recommendation and in specifying the [r]ecommended [p]roduct.” On September 12, 2012, SWC removed the case to the Eastern District of Missouri based on diversity jurisdiction. SWC then moved to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, arguing the economic loss doctrine barred Dannix's complaint under Missouri law.

On December 3, 2012, the district court concluded Dannix's claim for “negligent misrepresentation [was] barred by Missouri's economic loss doctrine.” Noting “Missouri courts have recognized rare exceptions to the economic loss doctrine” for “cases involving a fiduciary relationship,” see, e.g., Autry Morlan Chevrolet Cadillac, Inc. v. RJF Agencies, Inc., 332 S.W.3d 184, 193 (Mo.Ct.App.2010), “negligence in providing professional services,” see, e.g., Business Men's Assur. Co. of Am. v. Graham, 891 S.W.2d 438, 454 (Mo.Ct.App.1994), and breach of a public duty, see, e.g., B.L. Jet Sales, Inc. v. Alton Packaging Corp., 724 S.W.2d 669, 672–73 (Mo.Ct.App.1987), the district court determined Dannix's claim did “not fall within any of those recognized exceptions.” Refusing to “expand Missouri law to create a new one,” the district court dismissed Dannix's complaint. Dannix timely appealed.

II. DISCUSSIONA. Standard of Review

“We review de novo the district court's grant of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), accepting [Dannix's] factual allegations as true and construing all reasonable inferences in favor of [Dannix].” Alexander v. Hedback, 718 F.3d 762, 765 (8th Cir.2013). “ ‘As a federal court, our role in diversity cases is to interpret state law, not to fashion it.’ ” Kingman v. Dillard's, Inc., 643 F.3d 607, 615 (8th Cir.2011) (quoting Orion Fin. Corp. v. Am. Foods Grp., Inc., 281 F.3d 733, 738 (8th Cir.2002)). “ ‘When determining the scope of Missouri law, we are bound by the decisions of the Supreme Court of Missouri. If the Supreme Court of Missouri has not addressed an issue, we must predict how the court would rule, and we follow decisions from the intermediate state courts when they are the best evidence of Missouri law.’ ” Id. (quoting Eubank v. Kan. City Power & Light Co., 626 F.3d 424, 427 (8th Cir.2010)).

B. Economic Loss

The only issue in this case is whether the district court erred in deciding Missouri's economic loss doctrine precluded Dannix's negligent misrepresentation claim. Anticipating how the Missouri Supreme Court would rule on this issue, we conclude the district court did not err.

“[D]istinguished from harm to person or damage to property,” economic, or commercial, “ ‘loss includes cost of repair and replacement of defective property which is the subject of the transaction, as well as commercial loss for inadequate value and consequent loss of profits or use.’ ” Groppel Co. v. U.S. Gypsum Co., 616 S.W.2d 49, 55 n. 5 (Mo.Ct.App.1981) (quoting Salmon Rivers Sportsman Camps, Inc. v. Cessna Aircraft Co., 97 Idaho 348, 544 P.2d 306, 309–10 (1975)). Economic loss also includes “ ‘the diminution in the value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold.’ ” Chi. Heights Venture v. Dynamit Nobel of Am., Inc., 782 F.2d 723, 727 (7th Cir.1986) (Illinois law) (quoting Moorman Mfg. Co. v. Nat'l Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443, 449 (1982)).

The economic loss doctrine prohibits a commercial buyer of goods “from seeking to recover in tort for economic losses that are contractual in nature.” Autry Morlan, 332 S.W.3d at 192 (tracing “[t]he roots of the economic loss doctrine” in Missouri to Crowder v. Vandendeale, 564 S.W.2d 879, 884 (Mo.1978) (en banc)). Expanding tort principles into the commercial arena risks drowning “contract law ... in a sea of tort.” E. River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986). While public policy may warrant allowing tort remedies to provide “more protection from dangerous products than is afforded by the law of warranty,” id. (citing Seely v. White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145, 149 (1965) (In Bank)), “loss due to repair costs, decreased value, and lost profits is essentially the failure of the purchaser to receive the benefit of its bargain—traditionally the core concern of contract law,” id. at 870, 106 S.Ct. 2295.

“In essence, the economic loss, or commercial loss, doctrine denies a remedy in tort to a party whose complaint is rooted in disappointed contractual or commercial expectations.” Mut. Serv. Cas. Ins. Co. v. Elizabeth State Bank, 265 F.3d 601, 615 (7th Cir.2001) (Illinois law) (quoting Collins v. Reynard, 154 Ill.2d 48, 180 Ill.Dec. 672, 607 N.E.2d 1185, 1188 (1992) (Miller, C.J., concurring)). “[A]lthough tort law is an appropriate vehicle for providing a recovery for physical injury to persons or to other property caused by defective goods, tort law should not be held to undermine the law of sales' balancing of the relationship between buyers and sellers regarding whether or not, and how well, products work.” Tioga Pub. Sch. Dist. No. 15 v. U.S. Gypsum Co., 984 F.2d 915, 918 (8th Cir.1993); accord Forrest v. Chrysler Corp., 632 S.W.2d 29, 31 (Mo.Ct.App.1982).

“The doctrine was judicially created to protect the integrity of the [Uniform Commercial Code (U.C.C.) ] bargaining process; it prevents tort law from altering the allocation of costs and risks negotiated by the parties.” Marvin Lumber & Cedar Co. v. PPG Indus., Inc., 223 F.3d 873, 882 (8th Cir.2000) (Minnesota law); see, e.g.,Mo.Rev.Stat. §§ 400.2–303 (risk allocation), 400.2–313 to –316 (warranties), 400.2–719 (limitation of remedies). “[C]ontract law, and the law of warranty in particular, is better suited for dealing with purely economic loss in the commercial arena than tort law, because it permits the parties to specify the terms of their bargain and to thereby protect themselves from commercial risk.” Dakota Gasification Co. v. Pascoe Bldg. Sys., a Div. of Amcord, Inc., 91 F.3d 1094, 1098 (8th Cir.1996) (North Dakota law); accord Crowder, 564 S.W.2d at 884.

1. Negligent Misrepresentation

“Under Missouri law, remedies for economic loss sustained by reason of damage to or defects in products sold are limited to those under the warranty provisions of the UCC.” Renaissance Leasing, LLC v. Vermeer Mfg. Co., 322 S.W.3d 112, 130–31 (Mo.2010) (en banc). Missouri's economic loss doctrine bars recovery for negligence, see R.W. Murray Co. v. Shatterproof Glass Corp., 697 F.2d 818, 828–29 (8th Cir.1983), and strict liability “where the only damage is to the product sold,” Sharp Bros. Contracting Co. v. Am. Hoist & Derrick Co., 703 S.W.2d 901, 903 (Mo.1986) (en banc).

Recognizing the severe limitations imposed by the economic loss doctrine, Dannix is adamant it does not make a straight defect claim. Instead, Dannix asserts a claim for negligent misrepresentation based on SWC's product recommendation, “seeking damages for the loss it suffered when the recommended product proved unsuitable.” ⁴ According to Dannix, the economic loss doctrine does not apply to its negligent misrepresentation claim because Dannix faults SWC's recommendation rather than its product. Dannix's attempt to circumvent the U.C.C. bargaining process and avoid the parties' agreed allocation of risk is unavailing.

Dannix has not cited, and we are unable to find, a Missouri case allowing a commercial buyer of goods under the U.C.C. to maintain a negligent misrepresentation claim against the seller based upon the seller's recommendation as to the fitness or performance of those goods.⁵See Bruce Martin Constr., Inc. v. CTB, Inc., No. 1:10CV205SNLJ, 2012 WL 718624, at *3 (E.D.Mo. Mar. 6, 2012) (recognizing “the Missouri Supreme Court has not addressed this issue”). Although the Missouri state courts have not specifically addressed whether a commercial buyer may...