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City of Franklin v. W. L. Hailey & Co., Inc.

Court of Appeals of Tennessee, Nashville

October 30, 2019

CITY OF FRANKLIN, TENNESSEE
v.
W. L. HAILEY & CO., INC. ET AL.

          Session August 13, 2019

          Appeal from the Chancery Court for Williamson County No. 46766 Joseph A. Woodruff, Judge.

         Appellant city appeals from the dismissal of its negligent misrepresentation claim on the basis of the economic loss doctrine, arguing that Tennessee law recognizes an exception to the economic loss doctrine for negligent misrepresentations. Because we conclude that Tennessee law does not recognize a negligent misrepresentation exception to the economic loss doctrine, we affirm the decision of the trial court.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

          L. Wearen Hughes, John W. Dawson, IV, and Sarah B. Miller; Nashville and Shauna R. Billingsley and Tiffani Pope; Franklin, Tennessee, for the appellant, City of Franklin, Tennessee.

          Donald Capparella, Tyler Chance Yarbro, and Vic L. McConnell, Nashville, Tennessee for the appellant, Smith Seckman Reid, Inc.

          John A. Day and Elizabeth Sitgreaves, Brentwood, Tennessee and William Earl Touchstone, Houston, Texas, for the appellee, Hobas Pipe USA, LP.

          J. Steven Stafford, P.J., W.S., delivered the opinion of the court, in which Arnold B. Goldin, and Carma Dennis McGee, JJ., joined.

          OPINION

          J. STEVEN STAFFORD, JUDGE.

         I. Facts and Procedural History

         On November 17, 2017, the City of Franklin ("the City") brought suit against defendants W.L. Hailey & Company ("Hailey"), Smith Seckman Reid, Inc. ("SSR" and together with the City, "Appellants"), and Hobas Pipe USA, LP ("Hobas"), in the Chancery Court for Williamson County ("the trial court"). The City alleged, inter alia, claims for breach of contract, negligence, breach of warranty, and negligent misrepresentation. These claims arose out of a construction project that the City undertook from 2001-2003, in which the City constructed a sewage line for its residents. The City retained SSR to design the sewage line project. Following a bidding process based on the designs created by SSR, Hailey was awarded the project. Eventually, Hobas was selected to provide the pipes necessary to convey the sewage from residents to a treatment facility. The project was substantially completed in 2003. According to the complaint, however, the sewage line, known as the Interceptor, failed beginning in 2017, necessitating emergency repair work throughout the system. Eventually, flood damage led to portions of the Interceptor being replaced.

         Relevant to this appeal, Hobas filed a motion to dismiss on December 20, 2017, wherein Hobas alleged that the gravamen of the City's claims was for products liability, and that the ten-year statute of repose applicable to products liability claims barred the action. At the same time, Hobas filed an answer to the complaint denying the material allegations against it and raising a number of affirmative defenses.

         The City responded to Hobas's motion on January 19, 2018. As an initial matter, the City denied that its claims against Hobas should be characterized as a products liability action because the claims were not cognizable under the Tennessee Products Liability Act ("the Products Liability Act" or "the Act").[1] As such, the City argued that the Products Liability Act statute of repose did not apply. To the extent that any statute of limitations was applicable, however, the City submitted that application thereof was barred by the doctrine of nullum tempus occurrit regi. See Hamilton Cty. Bd. of Educ. v. Asbestospray Corp., 909 S.W.2d 783, 785 (Tenn. 1995), as clarified on reh'g (Nov. 20, 1995) ("The common law doctrine of nullum tempus occurit regi, which is literally translated as "time does not run against the king," prevents an action brought by the State from being dismissed due to the expiration of the statutory period of limitations normally applicable to the specific type of action.").

         On January 29, 2018, Hobas filed an amended motion to dismiss. In addition to its statute of limitations argument, Hobas raised two additional arguments in support of dismissal: (1) that the economic loss doctrine prevented a negligent misrepresentation claim, and (2) there was no privity between Hobas and the City so as to support a warranty claim.

         The City of Franklin moved for permission to amend its complaint on March 8, 2018. The trial court granted the motion by agreement on March 22, 2018. The amended complaint contained more specific allegations regarding the alleged negligent misrepresentation by Hobas, as relevant to this appeal. Specifically, the amended complaint alleged as follows:

14.As part of its bid for the Project, Hailey presented options or alternates for the type of pipe to be used in the Project, including ductile iron pipe and centrifugally cast fiberglass reinforced polyester pipe.
15. SSR assisted [the City] with evaluation of the pipe options. The evaluation of centrifugally cast fiberglass reinforced polyester pipe included pipe manufactured by Hobas.
16. During this evaluation, Hobas represented that its fiberglass pipe had an anticipated life of over 100 years. Hobas also provided information purporting to show that its fiberglass pipe was acceptable and appropriate for the Project's design parameters.
17. Based on SSR's evaluation of the options for the [project] and the information presented by Hobas during that evaluation, [the City] selected Hobas centrifugally cast fiberglass reinforced polyester pipe for the [project].
78. Hobas acted in the course of its business and with a pecuniary interest in its presentation and sale of its fiberglass pipe for use in the Project.
79. Hobas supplied faulty information to [the City] regarding the anticipated life of its fiberglass pipe.
80. Hobas also supplied faulty information to [the City] regarding the stiffness of the pipe, which testing shows was below the specified stiffness, including that indicated on the pipe.
81. Hobas failed to exercise reasonable care in obtaining and/or communicating information about the anticipated life of its pipe and the stiffness of its pipe.
82. To the extent the information provided by Hobas purporting to show that its fiberglass pipe was acceptable and appropriate for the Project's was faulty, Hobas failed to exercise reasonable care.
83.In choosing Hobas pipe, [the City] justifiably expected Hobas to supply to the project participants information that was not faulty and relied upon what turned out to be faulty information provided by Hobas.
84. Faulty information from Hobas proximately caused or contributed to the Interceptor failures and resulting damages to [the City].
85.[The City] has suffered, and continues to suffer, damages as a result of Hobas' negligent misrepresentations in an amount to be proven at trial and consisting of damages to, and costs to repair (including replacing), some of the pipe.

         The City thereafter responded to Hobas's amended motion to dismiss, arguing that Tennessee law recognizes an exception to the economic loss doctrine for claims of negligent misrepresentation, citing John Martin Co. v. Morse/Diesel, Inc., 819 S.W.2d 428 (Tenn. 1991). Hobas later responded in opposition, arguing that John Martin was not controlling.

         The trial court held a hearing on the motion to dismiss on March 22, 2018, and entered its memorandum and order granting the motion on May 18, 2018. Therein, the trial court found that (1) the City had not asserted a products liability claim, but that if it had, the ten-year statute of repose would have applied; (2) the breach of warranty claims could not survive because there was no contract between the parties; and (3) that the economic loss doctrine barred the City's negligent misrepresentation claim. The parties later joined in asking the trial court designate its ruling as final pursuant to Rule 54.02 of the Tennessee Rules of Civil Procedure, which the trial court did on July 24, 2018. The City thereafter timely appealed to this Court.

         II. Issues Presented

         This appeal involves a single issue: Whether the trial court erred in ruling that the economic loss doctrine barred the City's claim of negligent misrepresentation against Hobas.[2]

         III. Standard of Review

         This case was resolved on a motion to dismiss. In considering a motion to dismiss, courts "'construe the complaint liberally, presuming all factual allegations to be true and giving the plaintiff the benefit of all reasonable inferences.'" Webb v. Nashville Area Habitat for Humanity, Inc., 346 S.W.3d 422, 426 (Tenn. 2011) (quoting Tigg v. Pirelli Tire Corp., 232 S.W.3d 28, 31-32 (Tenn. 2007)). A motion to dismiss should be granted only where the plaintiff "'can prove no set of facts in support of the claim that would entitle the plaintiff to relief.'" Id. (quoting Crews v. Buckman Labs. Int'l, Inc., 78 S.W.3d 852, 857 (Tenn. 2002)). Our review of the trial court's decision to grant Hobas's motion to dismiss is de novo with no presumption of correctness. Id.

         IV. Discussion

         The sole issue presented in this appeal involves whether the trial court correctly concluded that the City's claim that it was harmed by Hobas's negligent misrepresentations concerning the pipe was barred by the economic loss doctrine. Tennessee officially recognized and adopted the economic loss doctrine at issue in this case in Lincoln General Insurance Co. v. Detroit Diesel Corp., 293 S.W.3d 487 (Tenn. 2009). "The economic loss doctrine is implicated in products liability cases when a defective product damages itself without causing personal injury or damage to other property." Id. at 489. This doctrine generally "precludes recovery in tort when a product damages itself without causing personal injury or damage to other property." Id. Generally, the purpose of the doctrine is to avoid the "collision between warranty and contract on the one hand and the torts of strict liability, negligence, fraud and misrepresentation on the other." Trinity Indus., Inc. v. McKinnon Bridge Co., Inc., 77 S.W.3d 159, 171 (Tenn. Ct. App. 2001) (quoting James J. White & Robert S. Summers, Uniform Commercial Code § 10-5, 580 (4th ed. 1995)).

         Although the doctrine takes many forms throughout the United States, see Milan Supply Chain Sols. Inc. v. Navistar Inc., No. W2018-00084-COA-R3-CV, 2019 WL 3812483, at *4 (Tenn. Ct. App. Aug. 14, 2019) (discussing "lack of uniformity in the approaches taken"), the question in this case is whether the doctrine adopted by the Tennessee Supreme Court bars the particular claims in this case. Hobas contends that the doctrine indeed bars the City's tort claims because it is undisputed for purposes of appeal that the sole damage that occurred in this case was to the Interceptor system ...


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