Quest Diagnostics, Inc. v. MCI WorldCom, Inc.

Decision Date20 February 2003
Docket NumberDocket No. 227384,Docket No. 227394.
Citation656 N.W.2d 858,254 Mich. App. 372
PartiesQUEST DIAGNOSTICS, INC., Plaintiff-Appellant, v. MCI WORLDCOM, INC., MCI Worldcom Communications, Inc., MCI Worldcom Network Services, Inc., and Corby Energy Services, Inc., Defendants-Appellees. Water Main Break Litigation, Plaintiff-Appellant, and Quest Diagnostics, Plaintiff, v. MCI Worldcom, Inc., MCI Worldcom Communications, Inc., MCI Worldcom Network Services, Inc., and Corby Energy Services, Inc., Defendants-Appellees.
CourtCourt of Appeal of Michigan — District of US

Hyman Lippitt, P.C. (by Kenneth F. Neuman and Daniel J. McCarthy), Birmingham, Mantese Miller and Mantese, PLLC (by E. Powell Miller and Gerald Mantese), Troy, and Urso, Palmer & Ross, P.C. (by Anthea E. Papista), Detroit, for Quest Diagnostics, Inc.

Jenner & Block (by Ross B. Bricker, Jeffrey A. Koppy and Sally Sears Coden), Chicago, IL, Howard & Howard, P.C. (by Robert A. Maxwell and Brian E. Etzel), Bloomfield Hills, Washington, DC, Kevin P. Gallagher, and Nicole Bynum, Washington, DC, for MCI WorldCom, Inc., MCI WorldCom Communications, Inc., and MCI WorldCom Network Services, Inc.

Garan Lucow Miller, P.C. (by Roger A. Smith and Robert D. Goldstein), Troy, for Corby Energy Services.

Before: MARKEY, P.J., and TALBOT and ZAHRA, JJ.

ZAHRA, J.

In these consolidated appeals, plaintiffs1 appeal as of right from the trial court's order granting summary disposition for defendants. We reverse and remand to the extent that these cases relate to defendant Corby Energy Services, Inc. (Corby).

Facts and Procedure

In June 1999, defendant Corby ruptured a water main while performing underground work on behalf of defendants MCI WorldCom, Inc., MCI WorldCom Communications, Inc., and MCI WorldCom Network Services, Inc. (collectively the MCI defendants). Plaintiffs brought this negligence action, alleging that as a result of the broken water main, they were without running water for several days, they had to boil their drinking water for several days, and the business plaintiffs were forced to close or curtail their operations. Plaintiffs also brought a claim alleging negligence per se based on defendants' failure to obtain a permit authorizing the excavating work.2 Defendants moved for summary disposition, arguing that the economic loss doctrine and public policy considerations precluded any recovery by plaintiffs because plaintiffs sought purely economic damages. The trial court granted summary disposition for defendants and these appeals followed.

Oral argument in this case was heard in May 2002. On August 2, 2002, the MCI defendants filed a notice of bankruptcy in these consolidated appeals. On August 16, 2002, this Court ordered the administrative closure of the appeals on the ground that further proceedings were stayed by 11 USC 362 due to the MCI defendants' bankruptcy filing. Plaintiffs filed a motion for rehearing of the stay order. This Court granted in part the motion for rehearing, allowing the appeals to proceed only as they relate to defendant Corby.

Analysis

Plaintiffs argue that the trial court erred in granting summary disposition on the basis that the economic loss doctrine barred plaintiffs' claims. We review de novo a trial court's decision on a motion for summary disposition. Spiek v. Dep't of Transportation, 456 Mich. 331, 337, 572 N.W.2d 201 (1998). Under MCR 2.116(C)(8), a motion for failure to state a claim for which relief may be granted tests the legal sufficiency of the pleadings. Simko v. Blake, 448 Mich. 648, 654, 532 N.W.2d 842 (1995). "All well-pleaded factual allegations are accepted as true and construed in a light most favorable to the nonmovant." Maiden v. Rozwood, 461 Mich. 109, 119, 597 N.W.2d 817 (1999). Summary disposition under MCR 2.116(C)(8) is proper when a claim is so clearly unenforceable as a matter of law that no factual development could establish the claim and justify recovery. Simko, supra.

A large majority of jurisdictions in the United States have adopted some form of a judicially created limitation on tort actions that seek to recover economic damages resulting from commercial transactions. This limitation is known as the economic loss doctrine. Mt. Lebanon Personal Care Home, Inc. v. Hoover Universal, Inc., 276 F.3d 845, 848 (C.A.6, 2002), citing Frumer & Friedman, Products Liability, § 13.11[1] (2000). The economic loss doctrine is derived from the Uniform Commercial Code (UCC). According to White & Summers, Uniform Commercial Code (Hornbook Series, 4th ed.), p. 386, "the economic loss doctrine [is] a crude proxy for the dividing line between what is tort and what is not." The doctrine's basic premise is that economic losses that relate to commercial transactions are not recoverable in tort. White and Summers reason:

Putting aside injury to third parties that arises out of conventional tortious behavior and ignoring personal injury to the buyer, we see no reason why all other liability arising out of defective goods ought not be under Article 2. By hypothesis the parties to these suits negotiate with one another. If the buyer does not protect its own interest adequately, adequate backup protection is given by Article 2 doctrines such as unconscionability in 2-302, restriction of disclaimers under 2-316, and limitation on disclaimer of remedy under 2-719. Courts should be particularly skeptical of business plaintiffs who—having negotiated an elaborate contract or having signed a form when they wish they had not—claim to have a right in tort whether the tort theory is negligent misrepresentation, strict tort, or negligence. [Id., pp. 386-387.]

The Michigan Supreme Court formally adopted the economic loss doctrine in Neibarger v. Universal Coop., Inc., 439 Mich. 512, 486 N.W.2d 612 (1992), explaining that

"`[w]here a purchaser's expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only "economic" losses.'" This doctrine hinges on a distinction drawn between transactions involving the sale of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts. [Id. at 520-521, 486 N.W.2d 612 (citations omitted).]3 If a commercial purchaser were allowed to sue in tort to recover economic loss, the UCC would be rendered meaningless and "`contract law would drown in a sea of tort.'" Id. at 528, 486 N.W.2d 612, quoting East River Steamship Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 866, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986).

Since Neibarger, the economic loss doctrine in Michigan has been applied in the context of various transactions for goods or products to bar recovery in tort when damages are recoverable under the Uniform Commercial Code. Sherman v. Sea Ray Boats, Inc., 251 Mich.App. 41, 649 N.W.2d 783 (2002) (involving the sale of a boat); MASB-SEG Prop./Cas. Pool, Inc. v. Metalux, 231 Mich.App. 393, 586 N.W.2d 549 (1998) (involving the sale of a light fixture); Citizens Ins. Co. v. Osmose Wood Preserving, Inc., 231 Mich.App. 40, 585 N.W.2d 314 (1998) (involving the sale of flame-retardant chemicals applied to roofing materials); Huron Tool & Engineering Co. v. Precision Consulting Services, Inc., 209 Mich.App. 365, 532 N.W.2d 541 (1995) (involving the sale of a software system); Krupp PM Engineering, Inc. v. Honeywell, Inc., 209 Mich.App. 104, 530 N.W.2d 146 (1995) (involving the sale of a furnace component).4 This Court has extended the economic loss doctrine beyond commercial transactions involving sophisticated users to the sale of consumer goods, even when the plaintiff consumer enters into a transaction with an entity of greater knowledge or bargaining power. Sherman, supra at 47-50, 649 N.W.2d 783 (economic loss doctrine applied when the individual consumer plaintiff purchased a boat from the defendant manufacturer).5

A factor present in all cases in which Michigan courts have applied the economic loss doctrine is that the parties to the litigation were involved, either directly or indirectly, in a transaction for goods. For example, in Metalux, supra at 402, 586 N.W.2d 549, this Court focused on the parties involved and the nature of the product's use in concluding that the economic loss doctrine applied. Both parties were "sophisticated commercial entities who had the knowledge and ability to allocate liability in their purchase and sale agreement." Id. Furthermore, the purchase was for a commercial purpose. Id. This Court concluded that the economic loss doctrine applied and the plaintiff's exclusive remedy was provided by the UCC because the consequences of the product's potential failure were likely to have been contemplated by the parties when they entered into the agreement for the sale. Id.

This Court has declined to apply the economic loss doctrine where the claim emanates from a contract for services. See Higgins v. Lauritzen, 209 Mich.App. 266, 530 N.W.2d 171 (1995).6 This Court has also concluded that the economic loss doctrine does not apply when a plaintiff could not have anticipated a safety hazard involved in a product through bargaining or negotiation at the time of the transaction or purchase. Detroit Bd. of Ed. v. Celotex Corp. (On Remand), 196 Mich.App. 694, 705, 493 N.W.2d 513 (1992). In Celotex Corp, this Court determined that the economic loss doctrine did not apply where the plaintiffs sued the defendant manufacturer of asbestos products that were used in the plaintiffs' school buildings. Id. at 703-705, 493 N.W.2d 513. This Court explained that the economic loss doctrine applied to commercial transactions where "the parties have the ability to bargain for the terms of sale,...

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