CCLD Bars Tort Claims Overlapping with Contract Claims under Economic Loss Doctrine

Morris James LLP

GEA Sys. N. Am. LLC v. Golden State Foods Corp., C.A. No. N18C-11-242 EMD CCLD (Del. Super. Ct. June 8, 2020)

This case illustrates the extent to which the economic loss doctrine bars tort claims arising out of the same transaction as claims for breach of contract. In this case, plaintiff GEA Systems North America LLC (“GEA”) sold defendant Golden State Food Corp. (“Golden State”) three industrial freezers for use in Golden State’s hamburger patty facility. Golden State argued, among other things, that the freezers did not meet the production figures that GEA promised and GEA failed properly to install or repair the freezers. For this alleged misconduct, Golden State brought claims for negligence, fraudulent inducement, and intentional misrepresentation as well as for breach of contract. On a motion to dismiss, the Delaware Superior Court held that the economic loss doctrine barred the fraudulent inducement and intentional misrepresentations claims, but not the claims for negligence and gross negligence.

The economic loss doctrine “prohibits certain claims in tort where overlapping claims based in contract adequately address the injury alleged.” To sustain a tort claim under the economic loss doctrine, a party must allege that the opposing party “breached a duty independent of its contractual obligations.” The Superior Court held that the economic loss doctrine did not bar Golden State’s negligence or gross negligence claims. This was because Golden State alleged damages for the negligence claims different from its contractual damages. More specifically, Golden State not only alleged that the freezers were defective, but also that the freezers damaged other property for which the contract provided no remedy.

Next, the Superior Court dismissed the fraudulent inducement claim. The economic loss doctrine ordinarily does not bar fraudulent inducement claims. The Court reasoned here, however, that Golden State’s alleged false statements were “opinions regarding future actions and the quality of the product.” The Court opined that GEA’s alleged misrepresentations were promises for future actions, not false representations of existing facts necessary to support a fraud claim, because the freezers had not been created at the time of the agreement. The Court also ruled that the economic loss doctrine bars fraud claims where, as here, a fraudulent misrepresentation only relates to the quality or quantity of the goods promised in a contract.

The Superior Court, lastly, dismissed the intentional misrepresentation claim under the economic loss doctrine. This claim stemmed from Golden State’s allegations that GEA lulled Golden State into a false sense of security, knew or should have known that GEA’s products could not meet Golden State’s production demand, promised to send engineers to fix defects, and unreasonably delayed in addressing problems. The Court, again, found that GEA’s assurances were mere promises, rather than misrepresentations of existing facts sufficient to sustain an intentional misrepresentation claim. The Court also held that the mere allegation that GEA did not intend to fulfill its contractual obligations was an impermissible “bootstrap” to the breach of contract claim and, without more, did not suffice to state a claim.  

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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