Milan Supply Chain Solutions, Inc. v. Navistar, Inc.

• Decision Date: 02 August 2021
• Docket Number: No. W2018-00084-SC-R11-CV,W2018-00084-SC-R11-CV
• Court: Tennessee Supreme Court
• Parties: MILAN SUPPLY CHAIN SOLUTIONS, INC. f/k/a Milan Express, Inc. v. NAVISTAR, INC. et al.

627 S.W.3d 125

MILAN SUPPLY CHAIN SOLUTIONS, INC. f/k/a Milan Express, Inc.

v.NAVISTAR, INC. et al.

No. W2018-00084-SC-R11-CV

Supreme Court of Tennessee.

November 4, 2020 Session¹

FILED August 2, 2021

Donald Capparella, Tyler Chance Yarbro, Kimberly Macdonald, and James Walker, Nashville, Tennessee, and Marty Phillips and Adam Nelson, Jackson, Tennessee, for the appellant, Milan Supply Chain Solutions, Inc. f/k/a Milan Express, Inc.

Eugene N. Bulso, Jr. and Paul J. Krog, Nashville, Tennessee, Roman Martinez and Charles Dameron, Washington, D.C., and Kevin Jakopchek, Chicago, Illinois, for the appellees, Navistar, Inc. and Volunteer International, Inc.

H. Anthony Duncan, Nashville, Tennessee, Brian G. Brooks, Greenbrier, Arkansas, and John Vail, Washington, D.C., for the amici curiae, Ellen Bublick, John C. P. Goldberg, Jim Rossi, Paul Hayden, Vincent Johnson, Gregory Keating, Tony Sebok, Ben Zipursky ("Law Professors"), and the Tennessee Trial Lawyers Association.

Bradley M. Davis and Nathan L. Kinard, Chattanooga, Tennessee, for the amicus curiae, Tennessee Chamber of Commerce & Industry.

Cornelia A. Clark, J., delivered the opinion of the court, in which Jeffrey S. Bivins, C.J., and Sharon G. Lee, Holly Kirby, and Roger A. Page, JJ., joined.

OPINION

Cornelia A. Clark, J.

We granted permission to appeal primarily to consider how, if at all, the economic loss doctrine, which generally precludes recovery for purely economic losses in tort actions, applies in Tennessee to claims of fraudulent inducement. We hold that when, as here, a fraud claim seeks recovery of only economic losses and is premised solely on misrepresentations or nondisclosures about the quality of goods that are the subject of a contract between sophisticated commercial parties, the economic loss doctrine applies. Accordingly, we affirm the judgment of the Court of Appeals holding that the economic loss doctrine bars the plaintiff's fraudulent inducement claim. We also affirm the judgment of the Court of Appeals holding that the plaintiff's claim under the Tennessee Consumer Protection Act ("TCPA") is barred as a matter of law because the trucks at issue are not "goods" as that term is defined by the portion of the TCPA on which the plaintiff relied. Tenn. Code Ann. § 47-18-104(b)(7) (2013 & Supp. 2020). We, therefore, set aside the plaintiff's award of attorney's fees and costs based on the TCPA. In all other respects, we affirm the judgment of the Court of Appeals on the separate grounds stated herein.

I. Background

A. The Parties

Milan Supply Chain Solutions, Inc., f/k/a Milan Express, Inc. ("Milan"), is a logistics company located in Jackson, Tennessee. Navistar, Inc. ("Navistar") is an Illinois company that manufactures various heavy-duty diesel engines that are used primarily in Navistar's International commercial trucks. Volunteer International, Inc. ("Volunteer") is an independent dealership located in Jackson, Tennessee, which exclusively sells and services new and used Navistar trucks and equipment.² Navistar and Volunteer are unrelated entities and have no common ownership or management. This appeal involves Milan's purchase from Volunteer of over 200 Navistar ProStar trucks with MaxxForce engines. The following is a summary of the proof offered at trial.

B. Navistar's MaxxForce Engine

Navistar's MaxxForce engine was developed to meet the EPA emissions standards that became effective in 2010. These standards required manufacturers of heavy-duty trucks to lower nitrogen oxide emissions.³ Manufacturers of diesel engines chose one of two emissions technologies to meet the 2010 standards: exhaust gas recirculation ("EGR") or selective catalytic reduction ("SCR"). EGR technology involved "exhaust recirculation, you take a percentage of the exhaust, recycle it back to the intake, and you run it through an EGR valve ... to regulate it, and you run it through a cooler to cool it because you really can't put hot exhaust back into the intake of the engine. So the recirculated exhaust moderates or dilutes the combustion so less nitrogen oxides are generated."⁴ EGR technology had been used for thirty or forty years in a variety of engines, but it had never been used to reduce emissions as low as the 2010 EPA standards required. Manufacturers were concerned that using EGR-only technology would produce excess heat and soot in the engine and reduce engine reliability.

SCR was the other technology available for meeting the 2010 emissions standards. It had been used in Europe for several years before 2010, but it had not previously been used in North America. SCR technology required installation of a catalytic converter behind the engine that, according to Milan's expert witness, includes "a small fuel injector that's actually injecting what's called diesel emission fluid, and it's a urea solution that chemically reacts with the nitrogen oxides and just converts it back to nitrogen. So it's a little chemical factory on the back of the engine...." For SCR emissions systems, tanks had to be installed on trucks to contain the diesel emission fluid, and drivers had to refill the tanks for the emissions systems to function properly. SCR technology was not stand alone and was used in conjunction with EGR technology.

When the 2010 emissions standards were initially promulgated in the late 1990s and early 2000s, the EPA and diesel engine manufacturers alike had several concerns with SCR emissions systems. Unlike Europe, the United States did not have the infrastructure in place to support the system. Truck stops did not sell diesel emissions fluid, and the fluid was available only at chemical plants at that time. SCR emissions systems depended on truck drivers refilling the tanks to function properly, and the EPA preferred an emissions system not dependent on driver compliance. Finally, the tank and fluid needed for an SCR emissions system weighed 500 to 600 pounds, so SCR reduced a truck's freight-weight capacity.

Despite these concerns, by the time the 2010 emissions standards became effective, all of Navistar's competitors had adopted SCR technology. Navistar, however, "really wanted not to have all the complexity of SCR" and decided to satisfy the 2010 emissions with an EGR-only emissions system. To this end, Navistar contracted with a well-known diesel engine manufacturer to build an engine with an EGR-only emissions system. The engine manufacturer backed out of the deal late in the process, but Navistar decided to proceed with its plan to produce an engine using EGR-only technology. Navistar dubbed this engine the MaxxForce.⁵

Navistar began the project to produce the MaxxForce engine in October 2007 and knew the project was starting late for the planned January 2010 launch. Rather than building an entirely new engine, Navistar purchased an existing engine from a European manufacturer. This engine had been developed in the 1990s and had been in production since 2002. It was released in 2007 with an EGR-only emissions system designed to limit emissions to no more than 1.2 g of nitrogen oxide. Navistar retained eighty percent of the 2007 base engine, but to achieve compliance with the 2010 emissions standards, Navistar upgraded several components of the EGR-only emissions system, including the EGR cooler and the EGR valve. Navistar purchased eighty percent of these components from other companies, and these companies were responsible for validating the components through bench testing—testing the components to try to get them to break. Navistar also bench tested the components. Additionally, Navistar conducted dynamometer testing, which entails assembling the engine and mounting it on a machine in a lab to test it under various and extreme conditions. For engines with high-mileage life expectancies, like the MaxxForce, Navistar conducted extensive dynamometer testing. Navistar also conducted field testing of its MaxxForce engine.

At the outset of its development of the MaxxForce engine, Navistar set a dynamometer testing goal of 2.8 million miles and a field-testing goal of 1.2 million miles. Navistar also set a target repair rate of .857 or 850 repairs per 1000 trucks over a two-year period. This target was set by reviewing industry-wide repair data and setting a goal lower than the industry average. Navistar had not met these goals at the beginning of 2010, so it delayed the launch of the MaxxForce engine.

By September 14, 2010, just prior to the launch, Navistar had attained 9,013,520 miles of dynamometer testing and 2,646,415 miles of field testing. Navistar conducted field tests in Alaska, Denver, Colorado, and Las Vegas, Nevada. Ten trucks attained 100,000 field-test miles, and two attained close to 200,000 field-test miles. The life expectancy of the MaxxForce engine was one million miles, but none of the field test vehicles attained this high mileage. Navistar relied on its dynamometer testing to determine the high-mileage reliability and durability of its MaxxForce engine. At the end of testing and just prior to launch, Navistar's predicted repair rate for the MaxxForce engine was .892, just above Navistar's target of .857, about ninety-four percent of its targeted reliability goal. When the MaxxForce engine launched, the reliability group at Navistar was "very confident" because "each of [its] measured goals" had been attained or very nearly attained.

However, Navistar had continued changing and improving its EPA 2010 MaxxForce engine throughout its testing process, so not all of the testing mileage involved the final product sold to customers. Additionally, Navistar's testing revealed problems with some of the components of the EGR-only emissions system. Some of the problems were solved prior to launch, but others were not. In particular, Navistar knew at the time of launch of the potential for premature cracking of the EGR cooler and knew that this potential failure could cause internal coolant leakage into other engine components during the anticipated...