Commercial Painting Company INC. v. The Weitz Company LLC ( 2022 )

03/11/2022
IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
February 16, 2021 Session
COMMERCIAL PAINTING COMPANY INC. v. THE WEITZ COMPANY
LLC ET AL.
Appeal from the Chancery Court for Shelby County
No. CH-06-1573 JoeDae L. Jenkins, Chancellor
___________________________________
No. W2019-02089-COA-R3-CV
___________________________________
This is the third appeal arising from a commercial construction project. Most recently, the
case went to trial before a jury, which awarded the plaintiff subcontractor $1,729,122.46
in compensatory damages under four separate theories and $3,900,000.00 in punitive
damages. The trial court further awarded the plaintiff pre- and post-judgment interest and
attorney’s fees and costs. We conclude the economic loss rule is applicable to construction
contracts negotiated between sophisticated commercial entities and that fraud is not an
exception under the particular circumstances of this case. Because punitive damages and
interest are not authorized under the parties’ agreement, those damages are reversed. The
compensatory damages of $1,729,122.46 awarded for breach of contract are affirmed. The
award of attorney’s fees incurred at trial are vacated for a determination of the attorney’s
fees incurred in obtaining the compensatory damages award. No attorney’s fees are
awarded on appeal. We therefore reverse in part, affirm in part, and vacate in part.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Reversed
in Part; Affirmed in Part; Vacated in Part and Remanded
J. STEVEN STAFFORD, P. J., W.S., delivered the opinion of the court, in which D. MICHAEL
SWINEY, C.J. and CARMA DENNIS MCGEE, J., joined.
Philip E. Beck, Atlanta, Georgia; Jeffrey C. Smith, Memphis, Tennessee; John A. Templer,
Jr., Des Moines, Iowa, for the appellants, Federal Insurance Company (NJ), St. Paul Fire
& Marine Insurance Company, and The Weitz Company, LLC.
Scott A. Frick, Memphis, Tennessee, for the appellees, Commercial Painting Company,
Inc., and Liberty Mutual Insurance Company (MA).
Gregory L. Cashion, Nashville, Tennessee, for the Amicus Curae, Associated General
1
Contractors of America and Associated General Contractors of Tennessee, Inc. In support
of Defendants/Appellants
OPINION
I. BACKGROUND
This is the third appeal in this case. See Com. Painting Co., Inc. v. The Weitz Co.,
LLC, No. W2013-01989-COA-R3-CV, 2016 WL 3519015, at *1 (Tenn. Ct. App. June 20,
2016) (“Commercial Painting II”); Com. Painting Co. v. Weitz Co., LLC, No. W2013-
01989-COA-R3-CV, 2014 WL 6453799, at *1 (Tenn. Ct. App. Nov. 18, 2014)
(“Commercial Painting I”). The genesis of this lawsuit is a contract dispute between
general contractor, Defendant/Appellant The Weitz Company, Inc. (“Weitz”), and its dry-
wall subcontractor, Plaintiff/Appellee Commercial Painting Company, Inc. (“Commercial
Painting”). Around the end of 2003, Weitz entered into a contract (“the Prime Contract”)
with the owner of the project to construct a continuing care retirement community (“the
Project”). In connection with the Prime Contract, Weitz and its sureties (together with
Weitz, “Appellants”), issued a payment bond that obligated them to pay for labor,
materials, and equipment furnished for use in the performance of the Prime Contract. The
payment bond, however, became void if Weitz made prompt payment for all sums due.
The payment bond was properly registered.
In October 2003, Commercial Painting bid on the drywall portion of the project.
Weitz decided to award the drywall work to Commercial Painting after receiving this bid.
Eventually, Mark Koch, on behalf of Commercial Painting as its President, executed a
subcontract with Weitz (“the Subcontract”) on November 1, 2004, with an effective date
of September 28, 2004. At that time, Mr. Koch reviewed the terms of the Subcontract,
made some changes to it, and initialed every page of the 93-page document.
The Subcontract establishes a “Subcontract Sum” of $3,222,400.00 as the agreed-
upon price that Commercial Painting was entitled to in exchange for full performance on
the Subcontract. The Subcontract referenced various drawings and specifications from the
Prime Contract to which Commercial Painting’s work was required to adhere. In some
areas, Commercial Painting was required to perform a Level 3 drywall finish, while in
other areas a Level 5 drywall finish was required. Whether Commercial Painting actually
performed at this level would become an issue of much dispute as the project progressed.
The Subcontract also required that Commercial Painting’s work be performed
according to Weitz’s project schedule and authorized Weitz to add extra work to
Commercial Painting’s scope of work. In order to do so, however, the Subcontract
indicated that the work would be “authorized in writing in advance” by Weitz. The
Subcontract also addressed the payment process and authorized Weitz to deduct from its
payments to Commercial Painting any amount necessary to protect Weitz or the owner
2
from losses related to Commercial Painting’s untimely, defective, or non-conforming
work. The Subcontract further provided that the Project schedule could be updated
periodically to reflect actual job progress. But the Subcontract obligated Commercial
Painting to provide sufficient crews, materials, and equipment to maintain or improve
Weitz’s schedule and gave Weitz the authority to reschedule or re-sequence Commercial
Painting’s work. Finally, the Subcontract contained the following provisions related to
damages:
5.6 Adjustments to Subcontract Time
[Commercial Painting] shall be entitled to an extension of the Subcontract
Time and/or reimbursement for delay damages only to the extent that the
[Weitz] actually receives an extension of time and/or reimbursement for
delay damages under the Prime Contract for events pertaining to the
[Commercial Painting’s] Work. Except to the extent of the foregoing
passthrough rights, [Commercial Painting] hereby waives and releases
[Weitz] from any and all Claims for such delay damages including without
limitation Claims attributable to breach of contract or tort and whether caused
by [Weitz], Owner or other persons for any reason or cause whatsoever, and
regardless of whether any such delay or other conduct on the part of [Weitz],
Owner or other person may be deemed unreasonable or was not contemplated
by the parties.
* * *
11.6 Contract Terms Control
In no event shall [Weitz] be obligated to pay [Commercial Painting] any
anticipatory profit or indirect, special, or consequential damages, however
caused, and [Commercial Painting] hereby waives all such Claims. Without
limiting the generality of the foregoing, [Commercial Painting] specifically
agrees that it shall not be entitled to assert, and it hereby waives, any Claims
in quantum meruit, interest on late payments, or any other measure of
damages other than as specifically provided in items 11.4 and 11.5 above.
Item 11.4 governed termination of the relationship by Weitz for cause; this section
generally entitled Commercial Painting to the unpaid balance on the Subcontract Sum
minus Weitz’s expenses in completing the project.1 If these expenses exceeded the unpaid
1
Specifically, item 11.4 provides as follows:
11.4 Consequences of Termination for Cause
Upon termination of [Commercial Painting’s] continuing performance under the
Agreement for cause, [Weitz] may without limitation of any other available remedies,
proceed as follows: (i) direct [Commercial Painting] to immediately leave the site, but to
give possession of all materials and supplies at the site and stored off-site, to [Weitz] for
use in completing [Commercial Painting’s] work; in the event of such a directive to leave
3
balance, then Commercial Painting’s surety was obligated to pay the difference. Item 11.5
provided that if the agreement was terminated by Weitz without cause, then Commercial
Painting was entitled to pro-rata payment of the Subcontract Sum for work timely and
properly performed and for proven loss with respect to materials, equipment, machinery,
and tools, to the extent that Weitz is able to recover these sums from the owner.2
According to our prior Opinion,
Allegedly, at the time the parties entered into the subcontract, Weitz
was already approximately six to eight months behind schedule on the
project. Commercial Painting would later assert that Weitz improperly and
unreasonably compressed construction schedules in order to make up for the
delay on the project. According to Weitz, however, the project became
further behind once Commercial Painting began working on the project in
the winter of 2004 due to Commercial Painting’s allegedly poor
the site, [Commercial Painting] agrees to do so immediately, even if it disputes the grounds
for the directive; [Weitz] shall also provide or cause to be provided such other materials,
supplies, tools, equipment, machinery, labor, services and other items as may be necessary
to complete [Commercial Painting’s] Work; or (ii) by registered or certified mail addressed
to [Commercial Painting’s] surety, if any, require the surety to provide such materials,
supplies, tools, equipment, machinery, labor, services and other items as may be necessary
to complete [Commercial Painting’s] work in strict compliance with the Subcontract
Documents. [Weitz] shall apply any unpaid balance of the Subcontract Sum to pay for such
completion costs; provided, that [Weitz] may first require [Commercial Painting] or its
surety, if any, to fund any anticipated excess completion costs. In all such events, if the
unpaid balance of the Subcontract Sum exceeds the costs of completing [Commercial
Painting’s] Work together with interest on such costs and together with any offsets and
deductions available to [Weitz], such excess shall be paid to [Commercial Painting].
However, if such costs, interest, deductions, and offsets exceed such unpaid balance,
[Commercial Painting] or [Commercial Painting’s] surety shall pay the difference to
[Weitz] upon demand.
2
Item 11.5 provides as follows:
11.5 Convenience
[Weitz] may terminate the Agreement at any time for the convenience of [Weitz] (i.e,
without cause), upon written notice thereof to [Commercial Painting]. In such event,
[Commercial Painting] shall be entitled to pro-rata payment of the Subcontract Sum for
[Commercial Painting’s] work properly and timely performed and for proven loss with
respect to unused materials, equipment, machinery, and tools, to the extent recoverable by
[Weitz] from the Owner. If [Weitz] is found to have improperly terminated [Commercial
Painting’s] continuing performance under items 11.1, 11.2, or 11.3, it shall be deemed to
have elected to terminate the Agreement for convenience under this item 11.5.
Item 11.1 deals with a default in performance by Commercial Painting; item 11.2 deals with the bankruptcy
or dissolution of Commercial Painting; item 11.3 deals with issues of labor relations and work stoppages.
4
worksmanship and failure to provide enough workers to timely complete the
project. Because of this, Weitz allegedly began negotiating with the project
owner regarding an extension on the contract completion date. It appears that
the project owner eventually allowed a six-month extension, but Commercial
Painting was only informed that an extension of approximately four months
had been granted. According to Commercial Painting, Weitz intentionally
and fraudulently failed to disclose the full extent of the extension, in violation
of the letter and spirit of the contract. Even with the extension, however,
Commercial Painting alleged that Weitz continued to compress its schedules
and improperly supplement its work because the extension did not entirely
mitigate the eight-month delay on the project.
As previously discussed, the parties also disagreed as to the level of
work required by the contract, and both parties asserted that they incurred
additional delays and additional costs to bring the work to the desired level.
Eventually, Weitz hired additional workers to supplement the work done by
Commercial Painting, alleging that it was required due to Commercial
Painting’s delays. Commercial Painting objected to the supplementation and
later alleged that they were required to perform even more work to correct
the work of the supplemental workers. At the conclusion of the contract,
Weitz paid Commercial Painting on Pay Applications 1 through 12.
However, Weitz refused to pay Commercial Painting on Pay Applications 13
through 17, which allegedly included previously agreed-upon work, as well
as additional work beyond the contract amount.
Commercial Painting filed a complaint for damages on August 11,
2006, seeking an award of $1,929,428.74, constituting damages for unpaid
progress payments, interest on retainage, extra work, unjust enrichment, plus
attorney’s fees and interest. In addition to its claims against Weitz,
Commercial Painting also sought a judgment against Weitz’s sureties
[Federal Insurance Company and St. Paul Fire & Marine Insurance Company
“Weitz’s sureties,” and together with Weitz, “Appellants”].[3] [Appellants]
filed an Answer and Counterclaim on January 24, 2007, seeking $500,000
for costs incurred on the project due to delays caused by Commercial
Painting. [Appellants] claimed an additional $233,217.51, representing
damages under the liquidated damages provisions of the parties’ contract, as
well as increased management expenses resulting from the need for
additional supervision of the supplemental workers retained by Weitz to
complete the project.
Commercial Painting I, 2014 WL 6453799, at *1–2 (footnote omitted).
3
Other parties were named as defendants in the original complaint. They are not at issue in this appeal.
5
The trial court granted partial summary judgment to Appellants on Commercial
Painting’s tort, rescission, and punitive damages claims. A bench trial commenced in
January 2012. Eventually, the trial court awarded Commercial Painting a judgment of
$450,464.26, but later reduced the judgment to $448,874.26. The trial court further
awarded Commercial Painting $75,000.00 in attorney’s fees, and $50,000.00 in expert’s
fees, thus increasing the total amount of the judgment to $573,874.26. Id. at *3.
The Court of Appeals vacated the trial court’s judgment and remanded for
reconsideration in light of Smith v. UHS of Lakeside, Inc., 439 S.W.3d 303 (Tenn. 2014).
See id. at * 6. The Tennessee Supreme Court subsequently granted Appellants’ application
for permission to appeal and remanded the case to the Court of Appeals for reconsideration
under the new summary judgment standard announced in Rye v. Women’s Care Center of
Memphis, MPLLC, 477 S.W.3d 235 (Tenn. 2015). See Commercial Painting II, 2016 WL
3519015, at *2. In Commercial Painting II, we reversed the trial court’s decision to grant
partial summary judgment to Weitz on the claims for both negligent and intentional
misrepresentation. As a result, the judgment entered following the bench trial was vacated
and the case was remanded back to the trial court for further proceedings. Id. at *12.
Commercial Painting thereafter obtained leave of court to file a Second Amended
Complaint, which was filed on June 16, 2017. Appellants filed an answer and counterclaim
on July 17, 2017, which answer raised several new defenses. Commercial Painting
responded with an answer to the counterclaim and a jury demand on July 20, 2017. On
August 2, 2017, Appellants filed a motion to strike the jury demand. Eventually, the trial
court denied Appellants’ motion to strike by order of October 19, 2017.
A jury trial began on September 17, 2018, on claims of negligent and intentional
misrepresentation, breach of contract, unjust enrichment, as well as a request for damages
pursuant to the payment bond. Commercial Painting presented proof that Weitz misled
them from the very beginning of the relationship with regard to the bids made by other
subcontractors, how far behind the Project was, and the fact that Weitz had received an
extension on the time contracted for completion of the Project. In addition, before the
Subcontract was signed, a representative from Weitz urged Commercial Painting to
expedite delivery of Commercial Painting’s payment and performance bonds. According
to Commercial Painting, the execution of these bonds meant that Commercial Painting was
required to complete work on the Project no matter what Weitz demanded.
According to Commercial Painting, the delays on the Project only got worse as time
went on. In order to recover from the delays, by at least November 2004, Commercial
Painting claimed that Weitz decided to compress the schedule on the work to be completed,
which involved allegedly improper supplementation of Commercial Painting’s work and
the work of other contractors. Mr. Koch testified that he would not have signed the
Subcontract had he known that Weitz was contemplating compressing the construction
schedule to make up for delays in the Project that were not attributable to Commercial
6
Painting. Moreover, the compression of the schedule led Commercial Painting to perform
extra work that was not contemplated under the Subcontract. According to the proof
submitted by Commercial Painting, however, Weitz refused to execute change orders
reflecting the extra work performed and thereafter refused to pay for such work.
As for the schedule attached to the Subcontract, Mr. Koch admitted that he was
aware when he signed the Subcontract in November 2004 that the attached schedule was
“ten months out-of-date[.]” Mr. Koch also admitted that he knew before the Subcontract
was signed that Weitz wanted to complete the Project early. But Mr. Koch testified that he
relied not necessarily on the final completion date for the Project, but the durations allowed
to complete certain tasks. When Weitz compressed the schedule, he asserted, it altered the
durations under the contract to Commercial Painting’s detriment.
At trial, Mr. Koch presented an exhibit that he asserted calculated the amounts due
under the Subcontract, which included the revised Subcontract Amount, fully executed
change orders, and change order requests for extra work. The calculation then subtracted
amounts related to work that was not performed by Commercial Painting due to
supplementation. Thus, Commercial Painting claimed that it suffered $1,835,075.56 in
actual damages as a result of Weitz’s conduct. Weitz disputed much of the damages,
including all extra work that was not authorized by signed change orders, as it argued was
required under the Subcontract.
On October 5, 2018, the trial court entered an order denying Appellants’ motion for
directed verdict as to Commercial Painting’s claims. The trial concluded on October 18,
2018, when the jury found in favor of Commercial Painting, awarding $1,729,122.46 in
compensatory damages in addition to prejudgment interest. Specifically, the jury found in
favor of Commercial Painting on four of the theories alleged: breach of contract;4 unjust
enrichment/quantum meruit; intentional misrepresentation;5 and under the payment bond.6
The jury further concluded that Weitz was liable for punitive damages. After a second
hearing, the jury awarded Commercial Painting $3,900,000.00 in punitive damages.
Several post-trial orders were entered throughout the end of 2018. First, on October
11, 2018, the trial court entered an order granting the parties’ motions to amend the
pleadings to conform to the evidence. On the same day, the parties filed a stipulation
regarding a $456,170.00 extrajudicial payment that would be credited against the
4
No claim for rescission was submitted to the jury.
5
The verdict form gave the jury the choice of either intentional misrepresentation or negligent
misrepresentation. The jury chose the former. As such, the claim of negligent misrepresentation is not at
issue in this appeal.
6
Specifically, the verdict form asked the jury, once it found a material breach of the Subcontract, to “enter
the amount of damages [the sureties] are liable for under the terms of the surety bond they issued at the
request of [Weitz] for the [] Project.” The jury answered with the full amount of damages awarded against
Weitz.
7
compensatory damages, which reduced the amount owed on the compensatory damages to
$1,272.952.46. The next day, the trial court entered an order approving the jury verdict. On
October 15, 2018, the trial court entered an order denying Appellants’ motion for a directed
verdict that was lodged after the close of all proof.
On October 29, 2018, Commercial Painting filed a motion to determine pre-
judgment and post-judgment interest, which was later supported by the affidavits of
counsel and Commercial Painting’s accountant. Commercial Painting amended this motion
on November 16, 2018. On November 19, 2018, Commercial Painting filed a motion for
an award of attorney’s fees and costs, as well as for the entry of a final judgment; this
motion was also later supplemented with affidavits.
On December 12, 2018, the trial court entered an order captioned as follows:
Order Adopting Findings Of Facts And Conclusions Of Law Supporting
Punitive Damages Award, Granting Motion To Determine Amount Of
Prejudgment Interest To Be Added To Final Judgment And Determination
Of Post-Judgment Interest Rate, Granting Motion For Award Of Attorney’s
Fees, Expenses And Costs And For Entry Of Final Judgment And Order Of
Final Judgment.
This order approved the punitive damages awarded by the jury in their entirety. In addition,
the trial court award Commercial Painting a $2,083,362.16 judgment for pre-judgment
interest, as well as costs and attorney’s fees in the amount of $1,103,549.00. In addition,
the trial court ruled that Commercial Painting was entitled to post-judgment interest. Thus,
the trial court awarded Commercial Painting a total judgment of $8,359,863.83, plus post-
judgment interest.7
On January 11, 2019, Commercial Painting filed a motion to alter or amend the
judgment to include revocation of Weitz’s contractor’s license. On the same day,
Appellants filed three motions: (1) to alter or amend the order approving the second
application of the Special Master for compensation and expenses; (2) a motion for
judgment notwithstanding the verdict; and (3) a motion for new trial. Both parties
responded to each other’s post-trial motions. A hearing on the post-trial motions occurred
on February 13, 2019.
On October 31, 2019, the trial court entered separate orders denying Commercial
Painting’s motion to alter or amend, as well as Appellants’ motion to alter or amend,
motion for new trial, and motion for judgment notwithstanding the verdict. On November
20, 2019, the trial court entered an order setting an appeal bond. On November 26, 2019,
Appellants filed their notice of appeal with this Court.
7
Weitz was liable for the entire judgment; the sureties were not held liable for the punitive damages or the
attorney’s fees and costs, but were jointly and severally liable for the remainder of the award.
8
II. ISSUES PRESENTED
Appellants raise the following issues for review, which are taken, with slight
restatements, from their brief:
1. Whether the trial court’s decision must be reversed because it is internally
inconsistent and it is irreconcilable with Tennessee law.
2. Whether the trial court erred in awarding non-contractual damages,
including punitive damages, against Weitz in this breach of contract case.
a. Whether the award of non-contractual and punitive damages in
this case is barred by the Economic Loss Doctrine.
b. Whether the award of non-economic and punitive damages in this
case is barred by the Independent Duty Doctrine.
c. Whether the award of punitive damages in this case is
inappropriate given that Tennessee law prohibits an award of
punitive damages in a breach of contract case except in very
unusual and narrow circumstances, which are not present here.
d. Whether the award of non-economic and punitive damages in this
case is inappropriate given that they are expressly barred by the
undisputed terms of the fully integrated written subcontract, which
governed and which established the parties’ relationships, rights,
and responsibilities, and included a waiver of non-contractual and
punitive damages.
3. Whether the trial court erred in deferring to the jury without properly
fulfilling the trial court’s role.
a. Whether the trial court erred by failing to follow this Court’s
directions in remanding the case on June 20, 2016.
4. Whether the trial court’s jury instructions and verdict form were defective
and confused the jury, resulting in an inconsistent and flawed jury verdict;
and whether the trial court erred in blindly entering a judgment based
upon that inconsistent and flawed jury verdict, given that:
a. The defective jury instructions and verdict form led the jury to
believe that it could and should award some damages under
multiple, inconsistent, and conflicting legal theories against
different defendants.
b. The trial court failed to fulfill its responsibility to evaluate the
jury’s verdict, in violation of Tennessee law.
c. The trial court simply adopted the jury’s verdict and adopted
Plaintiff’s proposed Findings of Fact, Conclusions of Law, Order,
and Judgement virtually verbatim (changing only one word in a
43-page Order), without a hearing; without any critical, objective
9
determination of whether Tennessee law supports them; and in
violation of the Lakeside rule and Tennessee law.
5. Whether the trial court erred in awarding prejudgment interest, post-
judgment interest, attorney’s fees, and costs contrary to the terms of the
Subcontract and Tennessee law.
6. Whether the trial court’s award of $3.9 million in punitive damages in
this case was reversible error even if the Court were to conclude that
punitive damages can be awarded in a case of this type under Tennessee
law.
In the posture of appellee, Commercial Painting seeks an award of attorney’s fees incurred
on appeal.
III. ANALYSIS
A.
We begin with Appellants’ argument that the verdict is internally inconsistent and
irreconcilable with Tennessee law.8 As we perceive it, Appellants’ argument is two-fold.
First, they focus on the jury’s finding that Commercial Painting had proven both a breach
of contract claim and a claim for quantum meruit, which Appellants argue is a legal
impossibility. Second, they take issue with the jury’s decision to award the exact same
amount of damages under four different theories.
To start, Appellants first argue that the jury’s verdict violates the election of
remedies doctrine. “The election of remedies doctrine . . . is a recognized part of
Tennessee’s jurisprudence. The doctrine prohibits and estops a plaintiff from seeking
inconsistent remedies once a clear choice has been made to pursue a specific
remedy.” Wimley v. Rudolph, 931 S.W.2d 513, 515 (Tenn. 1996) (citing Barger v.
Webb, 216 Tenn. 275, 391 S.W.2d 664 (1965)). Respectfully, we disagree that any error
as to this doctrine is present in this case.
8
Appellants essentially raise this argument, with slight differences, twice in their appellate brief.
Specifically, in addressing the jury instructions provided to the jury in their initial brief, Appellants point
to only two examples as evidence that the jury was confused: (1) that the jury awarded damages under
inconsistent theories; and (2) that the jury awarded the same amount of damages under multiple theories.
We therefore will not tax the length of this Opinion with a second analysis of these concerns. In their reply
brief, Appellants raise an additional argument concerning the lack of jury instruction delineating Weitz’s
duty to disclose. Reply briefs, however, are not vehicles for raising new arguments. See Clayton v. Herron,
No. M2014-01497-COA-R3-CV, 2015 WL 757240, at *3 (Tenn. Ct. App. Feb. 20, 2015) (“ It would be
fundamentally unfair to permit an appellant to advance new arguments in the reply brief, as the appellee
may not respond to a reply brief.”).
10
As an initial matter, we note that Rule 8.05 of the Tennessee Rules of Civil
Procedure permits alternative pleading:
A party may set forth two or more statements of a claim or defense
alternatively or hypothetically. When two or more statements are made in the
alternative and one of them if made independently would be sufficient, the
pleading is not made insufficient by the insufficiency of one or more of the
alternative statements. A party may also state as many separate claims or
defenses as he or she has, regardless of consistency.
Tenn. R. Civ. P. 8.05(b). Moreover, this Court has expressly held that the sole purpose of
the election of remedies doctrine is to prevent double compensation for the same wrong:
As an initial matter, although Tennessee recognizes
the election of remedies doctrine, its “sole purpose is to ‘prevent double
redress for a single wrong.’” Rolen v. Wood Presbyterian Home, Inc., 174
S.W.3d 158, 162 (Tenn. Ct. App. 2005) (quoting Concrete Spaces, Inc. v.
Sender, 2 S.W.3d 901 (Tenn. 1999)). As such, this Court has recognized on
multiple occasions that alternative theories may be maintained as late as
presentation to the jury or even following verdict. See Concrete Spaces, 2
S.W.3d at 906 (stating that election of remedies comes into play when
the jury finds two types of damages may be awarded); Cascade Ohio, Inc. v.
Modern Mach. Corp., No. E2009-01948-COA-R3-CV, 2010 WL 4629467,
at *13 (Tenn. Ct. App. Nov. 15, 2010) (“A buyer that is damaged by a breach
of contract involving a misrepresentation can elect, as late as after
the verdict comes in, between rescission of the contract and recovery of the
purchase price, or damages.”); Goodman v. Jones, No. E2006-02678-COA-
R3-CV, 2009 WL 103504 at *9–10 (Tenn. Ct. App. Jan. 12, 2009) (“If an
election must be made in order to avoid a ‘double recovery,’ it should be
made after the jury has rendered its verdict with its answers to specific
questions.”).
Dallas v. Shelby Cty. Bd. of Educ., 603 S.W.3d 32, 46–47 (Tenn. Ct. App. 2019), perm.
app. denied (Tenn. Apr. 1, 2020). Thus, alternative theories may be maintained “even
following verdict.” Id. at 47 (citing Concrete Spaces, 2 S.W.3d at 906). Indeed, this
holding is entirely consistent with our statements in Commercial Painting II, which
explained that
Commercial Painting is entitled to just one recovery to the extent damages
from more than one cause of action overlap, but it should not be precluded
from proceeding on multiple theories of liability if it is able to make out a
prima facie case under more than one cause of action.
11
Commercial Painting II, 2016 WL 3519015, at *12. Appellants have not designated as an
issue that Commercial Painting received a double recovery in this case or that it failed to
make out a prima facie case as to either the breach of contract or quantum meruit theories.
As such, there is no reversible error in the jury’s verdict in this regard.
Appellants next contend that the jury’s verdict is inconsistent and irreconcilable
with Tennessee law because it awarded the same amount under four different theories of
recovery, all of which have a different measure of damages. According to Appellants,
Commercial Painting only presented proof of damages under a single theory—breach of
contract. As a result, they argue that all damages resulting from the other theories must be
reversed as inconsistent.9
In considering this issue and many of the issues that follow, we keep the following
principles in mind:
Of course, in testing the validity of a plaintiff’s jury award we must view the
evidence in the light most favorable to plaintiff. This court has no right to
weigh the evidence in a jury case, but must indulge every reasonable
inference in favor of the plaintiff when there is material evidence in support
of the verdict. Houser v. Persinger, 57 Tenn.App. 401, 405, 419 S.W.2d 179,
181 ([Tenn. Ct. App.] 1967). We must look at all the evidence, take the
strongest legitimate view of it in favor of the plaintiff and allow all
reasonable inferences in plaintiff’s favor. Norman v. Liberty Life Assurance
Co., 556 S.W.2d 772, 773 (Tenn. [ct.] App. 1977); Truan v. Smith, 578
S.W.2d 73, 74 (Tenn. 1979). Our duty upon review of conflicting evidence
in a jury trial is not to determine where the truth lies, but only to determine
if there was any material evidence to support the verdict below. Davis v.
Wilson, 522 S.W.2d 872, 875 (Tenn. [Ct.] App. 1974); Chattanooga Gas
Co. v. Underwood, 38 Tenn.App. 142, 149, 270 S.W.2d 652, 655 (1954).
Even if we would have reached conclusions different from those reached by
the jury, if there is some material evidence to support the verdict, it must be
affirmed. Davis v. Wilson, supra; Chattanooga Gas Co. v. Underwood,
supra at 149–150, 270 S.W.2d at 655–656.
Mason v. Tennessee Farmers Mutual Insurance Co., 640 S.W.2d 561, 564 (Tenn. Ct.
App. 1982).
9
We note that Appellants frame this issue as related to an inconsistent jury verdict. They did not designate
an issue that the jury’s verdict as to any particular theory was unsupported by material evidence. To the
extent that Appellants allude to this issue in the body of their brief, such arguments are waived, as discussed
infra. See Childress v. Union Realty Co., 97 S.W.3d 573, 578 (Tenn. Ct. App. 2002) (“We consider an
issue waived where it is argued in the brief but not designated as an issue.”).
12
Commercial Painting asserts, however, that any argument concerning the same
damages amount for each theory was waived at trial by Appellants. Specifically,
Commercial Painting points, inter alia, to a colloquy that occurred after the jury asked the
precise question that is at issue here: “[C]an all the blanks be the same amount?” Counsel
for Appellants insisted that “[i]t could be zeros across the board.” When the trial court then
asked if everyone agreed that the answer to the above question was yes, counsel for
Appellants agreed.
In general, parties are not entitled to relief if they are responsible for the error or
failed to take corrective action that was available to prevent or nullify the error. See Tenn.
R. App. P. 36(a) (“Nothing in this rule shall be construed as requiring relief be granted to
a party responsible for an error or who failed to take whatever action was reasonably
available to prevent or nullify the harmful effect of an error.”). Here, Appellants readily
agreed that the jury could choose the same figure for each theory of relief in the hope that
the figure the jury chose would be zero. Alas, the jury did not choose to award nothing to
Commercial Painting. But in Appellants’ efforts to secure its most favorable outcome, they
waived any objection to the jury’s decision to award the same figure to Commercial
Painting for all its theories. As a result of Appellants’ own acquiescence, there is no
reversible error.10
B.
We next consider whether the trial court erred in allowing Commercial Painting to
amend its complaint to include a jury demand. Although the right to a jury trial is
guaranteed by the Tennessee Constitution, see Tenn. Const. art. I, § 6, “the right is not self-
enforcing.” Nagarajan v. Terry, 151 S.W.3d 166, 174 (Tenn. Ct. App. 2003). Instead, a
party must request a jury trial pursuant to Rule 38.02 of the Tennessee Rules of Civil
Procedure:
Any party may demand a trial by jury of any issue triable of right by jury by
demanding the same in any pleading specified in Rule 7.01 or by endorsing
the demand upon such pleading when it is filed, or by written demand filed
with the clerk, with notice to all parties, within 15 days after the service of
the last pleading raising an issue of fact.
Tenn. R. Civ. P. 38.02. “The failure of a party to make demand as required by this rule
constitutes a waiver by the party of trial by jury.” Tenn. R. Civ. P. 38.05. As a result,
Issues not demanded for trial by jury as provided in Rule 38 shall be tried by
the court; but, notwithstanding the failure of a party to demand a jury as to
10
We will revisit the proof presented of damages, however, later in this Opinion with regard to issues that
were properly preserved on appeal.
13
any issue with respect to which demand might have been made of right, the
court in its discretion upon motion may order a trial by jury of any or all
issues.
Tenn. R. Civ. P. 39.02; see also Nagarajan, 151 S.W.3d at 175 (“Trial courts may, in their
discretion, order a trial by jury notwithstanding a party’s failure to demand a jury in the
interest of justice.”).
Courts interpreting these rules have held that “[i]t is now well settled that where the
amendment creates new jury issues, a party upon timely demand therefor is entitled to a
jury trial, if the amended pleading sets forth new factual issues and not merely a different
legal theory.” BVT Lebanon Shopping Ctr., Ltd. v. Wal-Mart Stores, Inc., 48 S.W.3d 132,
135 (Tenn. 2001) (quoting Trimble v. Sonitrol of Memphis, Inc., 723 S.W.2d 633, 640
(Tenn. Ct. App. 1986)). An amended claim does not raise new factual issues if it merely
contains “‘a more detailed statement of the same charge’ as in the original complaint.”
Trimble, 723 S.W.2d at 640 (quoting Trixler Brokerage Co. v. Ralston Purina Co., 505
F.2d 1045 (9th Cir. 1974)).
There is no dispute that Commercial Painting did not demand a jury trial in its first
complaint, first amended complaint, or second amended complaint. Indeed, this case
originally was tried by bench trial. Following the remand in Commercial Painting II,
however, Appellants filed an amended answer and counterclaim. Therein, Appellants
raised a number of new defenses. Appellants assert, however, that these new defenses
raised only new issues of law, not of fact. Respectfully, we disagree. Some of Appellants’
new defenses raise factual, rather than legal, issues that triggered Commercial Painting’s
right to request a jury. Take for example, Appellants’ “Fourteenth Defense.” In the 2010
amended answer, this defense merely stated that Appellants reserved the right to amend
their answer to assert new defenses. The 2017 amended answer, however, asserted the
following: “Statements in construction schedules regarding future planned activities and
completion dates do not constitute statements of material fact and cannot form the basis for
either Commercial Painting’s intentional misrepresentation or its negligent
misrepresentation claim.”
Appellants offer no legal authority for their assertion that the issue of whether a
statement constituted a material fact is a question of law to be resolved by the court. Instead,
our research has revealed support for the opposite conclusion. See Ladd by Ladd v. Honda
Motor Co., 939 S.W.2d 83, 101 (Tenn. Ct. App. 1996) (citing Stamp v. Honest Abe Log
Homes, Inc., 804 S.W.2d 455, 458 (Tenn. Ct. App. 1990); Mackie v. Fuqua, 14 Tenn.
App. 176, 185 (Tenn. 1931)) (“A misrepresentation claim should be submitted to the jury
when the representation at issue may reasonably be interpreted either as an expression
of opinion or as a statement of fact.”). As such, we must conclude that the 2017 amended
answer, the last pleading before Commercial Painting demanded a jury trial, did raise new
factual issues that triggered Commercial Painting’s right to seek a new jury trial. See BVT
14
Lebanon, 48 S.W.3d at 135. As such, we cannot conclude that the trial court abused its
discretion in allowing Commercial Painting to demand a jury trial at such a late date.11
Even if the 2017 amended answer raised new factual issues, Appellants contend that
the trial court erred in allowing the jury trial because to do so was beyond the scope of the
remand. In support, Appellants cite two cases from 1993 in which we declined to conclude
that the trial court had abused its discretion in denying a party’s request for a jury trial
following a remand. Respectfully, we conclude that both cases are distinguishable.
First, in Zaharias v. Vassis, No. 01-A-01-9207-CH00266, 1993 WL 11709, at *2
(Tenn. Ct. App. Jan. 22, 1993) (“Zaharias II”), the case was remanded “for the
presentation of proof excluded by the Chancellor and the consideration by him of such
proof to determine the derivative rights of the plaintiff, if any, and any other proof or
proceedings that may be required and enter such decree as justice requires.” Zaharias v.
Vassis, 789 S.W.2d 906, 911 (Tenn. Ct. App. 1989). On remand, the defendant insurance
company requested a jury trial, which was denied by the trial court. Zaharias II, 1993 WL
11709, at *1. We concluded that the denial was proper “because the second proceeding
was merely a continuation of the first at which the insurance company waived its jury
demand.” Id. at *2. Indeed, nothing in the Zaharias II Opinion indicates that any party
filed an amended pleading raising new factual issues. Thus, the requirements outlined
above were not met. The same is generally true in the other case cited by Appellants, St.
Clair v. Evans, 857 S.W.2d 49, 50 (Tenn. Ct. App. 1993). There, the case was remanded
solely to add the plaintiff’s mother as a party. Other than this change, “the amended
complaint [wa]s identical to the original complaint[.]” Id. at 50.
The same is not true in this case. As previously discussed, the parties were permitted
to file amended pleadings. Appellants’ 2017 amended answer raised new factual issues.
Moreover, the original judgment following the bench trial was vacated by this Court and
remanded for further proceedings. Specifically, we “vacate[d] the trial court’s judgment
and award of damages following the trial, and remand[ed] the case for further proceedings
consistent with this opinion.” Commercial Painting II, 2016 WL 3519015, at *12. The
term “vacate” means “[t]o nullify or cancel; make void; invalidate.” Black’s Law
Dictionary 1688 (9th ed. 2009). Thus, the judgment from the prior trial was nullified by
the decision in Commercial Painting II. The remand was therefore not simply a
continuation of the prior proceeding, but more akin to a fresh start.
Moreover, the trial court’s compliance with our mandate must be measured in light
of “the larger opinion of the appellate court.” Larry E. Parrish, P.C. v. Strong, No. M2020-
11
Appellants do not argue in their appellate brief that the right to a jury trial triggered under Rule 38.02
applies only to the new issues, rather than all the issues in the case. Instead, they argue only that there were
no new factual issues alleged and that a jury trial should not have been permitted as to any issue. As such,
this Opinion should not be read to offer any opinion on that question.
15
01145-COA-R3-CV, 2021 WL 4471113, at *4 (Tenn. Ct. App. Sept. 30, 2021). The trial
court “‘may examine the rationale of an appellate opinion in order to discern the meaning
of language in the court’s mandate.’” Id. (quoting In re Estate of McCants, No. E2019-
01159-COA-R3-CV, 2020 WL 1652572, at *4 (Tenn. Ct. App. Apr. 3, 2020)).
Commercial Painting II clearly envisioned that a new trial would take place. Specifically,
the Opinion states that Commercial Painting “should not be precluded from proceeding on
multiple theories of liability if it is able to make out a prima facie case under more than
one cause of action.” Commercial Painting II, 2016 WL 3519015, at *12. Moreover, the
panel explained that “[i]f Commercial Painting is successful on its intentional
misrepresentation claim against Weitz, it may be entitled to recover punitive damages in
addition to compensatory damages.” Clearly, this language indicates that a future trial in
which proof would be presented would likely be necessary. Under these circumstances, we
discern no abuse of discretion in the trial court’s decision to allow Commercial Painting to
demand a jury trial in the pleading following Appellants’ 2017 amended answer.
C.
The next issue presented involves the decision to allow Commercial Painting to
recover in tort, rather than solely under the contract. Commercial Painting argues that this
case does not involve only contractual claims, but a claim of intentional
misrepresentation—a tort.12 As such, Commercial Painting contends that its ability to
recover is not limited by the parties’ contract but may include all damages that flow from
the wrong, including punitive damages. In response, Appellants contend that Commercial
Painting may not recover under tort theories under two separate doctrines—the
independent duty rule and the economic loss doctrine.
We begin with the independent duty rule, as this argument is easily disposed of.
Appellants contend that this doctrine provides that “[a] tort action only arises when the act
constituting the contract breach also constitutes a breach of a common law
duty independent of the contractual relationship.’” E Sols. for Buildings, LLC v. Knestrick
Contractor, Inc., No. M2018-02028-COA-R3-CV, 2019 WL 5607473, at *9 (Tenn. Ct.
App. Oct. 30, 2019) (quoting Yinghong Mach. Int’l Ltd. v. Wholesale Equip., Co., No.
2:13-cv-02671-JTF-cgc, 2014 WL 12887673, at *4 (W.D. Tenn. Oct. 17, 2014)
(citing Green v. Moore, No. M2000-03035-COA-R3-CV, 2001 WL 1660828, at *3 (Tenn.
Ct. App. 2001))); see also 21 Tenn. Prac. Contract Law and Practice § 1:4 (citing Weese
v. Wyndham Vacation Resorts, No. 3:07-CV-433, 2009 WL 1884058 (E.D. Tenn. 2009))
12
As the Tennessee Supreme Court has explained, “‘intentional misrepresentation,’
‘fraudulent misrepresentation,’ and ‘fraud’ are different names for the same cause of action. In this Opinion,
we will refer to the cause of action as a claim for intentional misrepresentation, and, in order to avoid
confusion, we suggest that this term should be used exclusively henceforth.” Hodge v. Craig, 382 S.W.3d
325, 342–43 (Tenn. 2012) (citation and footnote omitted). Thus, fraud and intentional misrepresentation
are used interchangeably in this Opinion.
16
(“Only where the act constituting a breach of contract also constitutes a breach of a
legal duty independent of the contract does an action arise in tort and not in contract.”).
The independent duty rule is closely related to the economic loss rule to the extent that
these rules may be interdependent. See Eastwood v. Horse Harbor Found., Inc., 170
Wash. 2d 380, 393, 241 P.3d 1256, 1264 (2010) (“In sum, the economic loss rule does not
bar recovery in tort when the defendant’s alleged misconduct implicates a tort duty that
arises independently of the terms of the contract.”); cf. Milan Supply Chain Sols., Inc. v.
Navistar, Inc., 627 S.W.3d 125, 147 (Tenn. 2021) (discussing certain approaches in which
fraud is not an exception to the economic loss rule because the duty to not commit fraud is
independent from the contract itself). Still, to the extent that that the independent duty rule
provides a separate basis for Appellants’ arguments, we conclude that it is waived.
Under Rule 3 of the Tennessee Rules of Appellate Procedure,
In all cases tried by a jury, no issue presented for review shall be predicated
upon error in the admission or exclusion of evidence, jury instructions
granted or refused, misconduct of jurors, parties or counsel, or other action
committed or occurring during the trial of the case, or other ground upon
which a new trial is sought, unless the same was specifically stated in a
motion for a new trial; otherwise such issues will be treated as waived.
Tenn. R. App. P. 3(e) (emphasis added). In this case, Appellants assert that they did ask for
a jury instruction on the independent legal duty doctrine, which instruction was refused by
the trial court. The problem is that Appellants thereafter did not specifically raise this ruling
as an error in their motion for new trial.
Appellants did raise the trial court’s failure to provide a “complete and
comprehensive” instruction to the jury. The only specific failure mentioned in the motion
for new trial, however, was the trial court’s alleged failure to fully instruct the jury on “the
law of fraud and misrepresentation” as well as Weitz’s reasonable beliefs that it was
permitted to supplement Commercial Painting’s work under the contract. The motion for
new trial does not mention any error surrounding the independent duty rule. Although the
motion for new trial’s argument was more fully addressed in the memorandum of law
accompanying it, Appellants did not specifically raise the issue of the independent duty
doctrine in their memorandum. Instead, they once again confined their jury instruction
arguments to the question of fraud and Weitz’s reasonable beliefs under the contract.
Because this issue was not raised in Appellants’ motion for new trial, it is waived under
Rule 3(e).13
13
To the extent that the independent duty rule is part of the economic loss rule, however, we will consider
it, infra.
17
We therefore must turn to the much more difficult question of whether the economic
loss rule is applicable in this case, as this issue was properly raised in Appellants’ motion
for new trial. The economic loss doctrine, or economic loss rule, is a judicially-created rule
that was developed in response to concerns that “tort law
would erode or consume contract law.” Milan Supply Chain Sols., Inc. v. Navistar, Inc.,
627 S.W.3d 125, 142 (Tenn. 2021) (citing Lincoln General Ins. Co. v. Detroit Diesel
Corp., 293 S.W.3d 487, 488 (Tenn. 2009)). “It has been described as a ‘judicially-created
remedies principle that operates generally to preclude contracting parties from pursuing
tort recovery for purely economic or commercial losses associated with the contract
relationship.’” Id. (quoting Plourde Sand & Gravel v. JGI E., Inc., 154 N.H. 791, 917
A.2d 1250, 1253 (N.H. 2007)). In other words, the rule “‘prevents a party who suffers
only economic loss from recovering damages under a tort theory.” Milan Supply Chain
Sols. Inc. v. Navistar Inc., No. W2018-00084-COA-R3-CV, 2019 WL 3812483, at *3
(Tenn. Ct. App. Aug. 14, 2019), aff’d in part on other grounds, 627 S.W.3d 125 (Tenn.
2021) (hereinafter Milan Supply Chain COA) (quoting Jeffrey L. Goodman et al., A Guide
to Understanding the Economic Loss Doctrine, 67 Drake L. Rev. 1, 2 (2019)); see also
Ins. Co. of N. Am. v. Cease Elec. Inc., 2004 WI 139, ¶ 24, 276 Wis. 2d 361, 372, 688
N.W.2d 462, 467 (“In general, tort offers a broader array of damages than contract. The
economic loss doctrine precludes parties under certain circumstances from eschewing the
more limited contract remedies and seeking tort remedies.”).
The rule was first adopted by the California Supreme Court. See generally Seely v.
White Motor Co., 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (Cal. 1965). Over two decades
later, it was adopted by the United States Supreme Court in an admiralty case. E. River
S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 106 S.Ct. 2295, 90 L.Ed.2d 865(1986). The Court described the rule as having become the “majority land-based approach”
by that time. Id. at 868. The purpose of the rule, according to the Supreme Court, was to
prevent contract law from “drown[ing] in a sea of tort.” Id.Tennessee courts were not quick to adopt the economic loss doctrine. In 1991, the
Tennessee Supreme Court first mentioned the doctrine, “but only fleetingly” in the context
of an exception to the rule outlined in the Restatement (Second) of Torts § 552. Milan
Supply Chain, 627 S.W.3d at 151 (citing John Martin Co. v. Morse/Diesel, Inc., 819
S.W.2d 428 (Tenn. 1991)). Then, in 1995, the Tennessee Supreme Court declined to extend
that exception to claims involving products liability. Id. (citing Ritter v. Custom
Chemicides, Inc., 912 S.W.2d 128, 132 (Tenn. 1995) (“Section 552 does not apply to
products liability cases . . . .”)). The Tennessee Supreme Court did not formally adopt the
economic loss rule until 2009 in response to a certified question from a federal court. Id.(citing Lincoln General, 293 S.W.3d at 488). In that case, the plaintiff urged the Court to
adopt an exception to the economic loss rule “when the defect renders the product
unreasonably dangerous and causes the damage by means of a sudden, calamitous event[.]”
Lincoln General, 293 S.W.3d at 488. The Tennessee Supreme Court declined to adopt
18
such an exception, but did formally adopt the economic loss rule as it applied to defective
products. Id. at 491–92.
Specifically, the court adopted the majority approach, which provides a bright-line
rule precluding recovery of purely economic losses when a product damages itself without
causing personal injury or damage to other property. Id. at 489. In choosing this version of
the economic loss rule, our high court agreed with the East River court
that the owner of a defective product that creates a risk of injury and was
damaged during a fire, a crash, or other similar occurrence is in the same
position as the owner of a defective product that malfunctions and simply
does not work. It follows that the remedies available to these similarly
situated product owners should derive from the parties’ agreements, not from
the law of torts, lest we disrupt the parties’ allocation of risk. To hold
otherwise would make it more difficult for parties to predict the
consequences of their business transactions, the cost of which ultimately falls
on consumers in the form of increased prices.
Id. (citations omitted). The court concluded that the rule was appropriate because it “fairly
balances the competing policy interests and clearly delineates between the law of contract
and the law of tort.” Id. at 492. Thus, when the economic loss rule is applicable, a party
may not “recover[] in tort.” Milan Supply Chain, 627 S.W.3d at 146 (quoting R. Joseph
Barton, Drowning in A Sea of Contract: Application of the Economic Loss Rule to Fraud
and Negligent Misrepresentation Claims, 41 Wm. & Mary L. Rev. 1789, 1811 (2000)).
Instead, a party in that situation is limited to its contractual remedies. See Milan Supply
Chain COA, 2019 WL 3812483, at *4 (quoting Goodman et al., supra, at 7) (noting that
the “economic loss doctrine prevents parties from subverting their contract and recovering
in tort what they could not obtain through their contractual remedies”).
Although the majority of jurisdictions have now adopted the economic loss rule in
some form, it remains a confusing morass of permutations. Milan Supply Chain, 627
S.W.3d at 144 (citing David v. Hett, 293 Kan. 679, 683, 270 P.3d 1102, 1105 (2011);
Barton, supra, at 1801). Instead, the Tennessee Supreme Court has cited favorably one
commentator that described the rule as “a ‘constellation of somewhat similar doctrines that
tend to limit liability’ but work in different ways in different contexts, for not necessarily
identical reasons, ‘with exceptions where the reasons for limiting liability were absent.’”
Id. at 145 (quoting Oscar S. Gray, Some Thoughts on “The Economic Loss Rule” and
Apportionment, 48 Ariz. L. Rev. 897, 898 (2006) (footnotes omitted)).
One source of confusion is the proper context of the doctrine—either limited to the
product liability context in which it originated or expanded to other contexts. Id.(citing Barton, supra, at 1802 (“Although the rule originated in the context of products
liability, the current trend expands the rule to apply in other contexts, most notably in real
19
property transactions and service contracts.” (footnote omitted))); see also, e.g., East River,
476 U.S. at 866 (involving a claim in the product liability realm); Seely, 403 P.2d at 149(same). Although the Tennessee Supreme Court noted that “many jurisdictions now apply
the economic loss doctrine in a wide array of circumstances beyond the products liability
context,” it emphasized that it had yet to do so. Milan Supply Chain, 627 S.W.3d at 153.
As such, this Court has previously held that Tennessee courts have essentially recognized
two situations in which the economic loss rule is applicable: (1) “a rule that
prevents purely economic losses for negligence when the plaintiff lacks privity of contract
with the defendant”; and (2) a “rule that applies when a defective product damages itself
without causing personal injury or damage to other property.” City of Franklin v. W.L.
Hailey & Co., 634 S.W.3d 16, 28 (Tenn. Ct. App. 2019) (citing Lincoln General, 293
S.W.3d at 488–89 (adopting the second version of the rule); John Martin, 819 S.W.2d at
431 (involving a case where the Tennessee Supreme Court was invited to adopt the first
version of the rule)); see also United Textile Workers of Am., AFL-CIO v. Lear Siegler
Seating Corp., 825 S.W.2d 83, 87 (Tenn. Ct. App. 1990) (applying the first version of the
rule). Courts outside Tennessee, however, have either modified the second scenario or
added a third variation to encompass situations outside the product liability context. This
formulation applies “when a contract exists between the parties” and “declares that when
a conflict arises between parties to a contract regarding the subject matter of that contract,
the contractual relationship controls, and parties are not permitted to assert actions in tort.”
Healthbanc Int’l, LLC v. Synergy Worldwide, Inc., 435 P.3d 193, 195 (Utah 2018)
(discussed in detail, infra)).
Another relatively unsettled area of law is at issue when the plaintiff raises claims
of intentional or negligent misrepresentation. Some jurisdictions have adopted exceptions
to the economic loss rule in these contexts. Recently, Tennessee courts have also been
tasked with determining the viability and application of these so-called exceptions in
Tennessee courts. First, in City of Franklin v. W.L. Hailey & Co., this Court held that
Tennessee law does not recognize an exception to the economic loss doctrine for negligent
misrepresentations in the product liability context. 634 S.W.3d at 34–37. Second, the
Tennessee Supreme Court adopted a more nuanced rule when fraud is claimed: “for
situations . . . involving a contract between sophisticated commercial business entities and
a fraudulent inducement claim seeking recovery of economic losses only, the economic
loss doctrine applies if the only misrepresentation[s] by the dishonest party concern[] the
quality or character of the goods sold.” Milan Supply Chain, 627 S.W.3d at 153–54.
Because the claims in this case likewise implicate fraud, we focus on the Milan Supply
Chain opinion.
In Milan Supply Chain, the plaintiff, a commercial trucking company purchased a
number of diesel engine trucks from the defendant seller. During the negotiations, the
defendant made certain representations about the trucks, including as to the amount of
testing that had occurred on them and as to the reliability of the engines. Id. at 132–33. The
parties eventually entered into a contract that required the defendant to repair or replace
20
defective truck components, but waived all other warranties. The contract further excluded
liability for loss of time or use of the vehicle, loss of profits, inconvenience, or incidental
or consequential damages. Id. at 133.
Eventually, the plaintiff experienced issues that led it to believe that the trucks did
not meet the representations of reliability that the defendant had given. When these issues
increased, the plaintiff filed suit against the defendant seller, alleging both contract claims,
negligent and fraudulent misrepresentation, and a violation of the Tennessee Consumer
Protection Act (“TCPA”). Id. at 134. The trial court granted the defendant summary
judgment as to the contract claims, concluding that the defendant had met its obligations
to repair or replace the truck parts as required by the contract. The trial court further found
that the contract disclaimed warranties and that the negligent misrepresentation claim was
barred by the economic loss doctrine. The case went to trial only on the fraud and TCPA
claims. The jury found for the plaintiff as to both claims, awarding plaintiff $8,236,109.00
in benefit-of-the-bargain damages and $2,549,481.00 in lost profit damages, for a total of
$10,785,590.00 in compensatory damages. The jury also found that the plaintiff was
eligible for an award of punitive damages. Following a second hearing, the jury warded
$20,000,000.00 in punitive damages. Id. at 140. The defendant filed several post-trial
motions arguing, inter alia, that the fraud claim was barred by the economic loss doctrine.
The trial court denied the motions and entered judgment on the jury’s verdict. Id. at 141.
Both parties appealed. As is relevant to this case, we held that the economic loss doctrine
barred the plaintiff’s fraud claim. See generally Milan Supply Chain COA, 2019 WL
3812483, at *7–9. The Tennessee Supreme Court thereafter granted the plaintiff’s
application for permission to appeal.
One of the central questions before the Tennessee Supreme Court was whether
Tennessee should recognize an exception to the economic loss doctrine for fraud. Milan
Supply Chain, 627 S.W.3d at 145. In order to resolve that issue, the court looked at the
three approaches that courts in other jurisdictions had taken to that question—the strict
approach, the broad fraud exception, and the limited or narrow fraud exception. Id. at 146.
As the Tennessee Supreme Court explained, the strict approach bars all fraud
claims. “In other words, under this approach, fraud claims are not an exception to the
economic loss doctrine.” Id. The rationale for this approach is that “the need to provide a
plaintiff with tort remedies is ‘diminished greatly when (1) the plaintiff can be made whole
under contract law, and (2) allowing additional tort remedies will impose additional costs
on society.’” Id. (quoting Werwinski v. Ford Motor Co., 286 F.3d 661, 680 (3d Cir.
2002), abrogated by Earl v. NVR, Inc., 990 F.3d 310 (3d Cir. 2021)). The court noted,
however, that the continued viability of this approach was unclear, “as the cases initially
recognizing it have been overruled, abrogated, or called into question by subsequent state
court decisions.” Id. (citing cases).
21
The majority approach, the broad fraud exception, allows plaintiffs to assert
fraudulent inducement claims notwithstanding the economic loss rule “because the duty
not to commit fraud exists independent of any contract.” Id. at 147. The rationale for this
exception was explained by our supreme court as follows:
These courts acknowledge that in essence, the parties to a contract
create a mini-universe for themselves, in which each voluntarily chooses his
contracting partner, each trusts the other’s willingness to keep his word and
honor his commitments, and in which they define their respective
obligations, rewards and risks. Under such a scenario, it is appropriate to
enforce only such obligations as each party voluntarily assumed, and to give
each party only such benefits as that party expected to receive, because this
is the function of contract law. However, this universe of expectations does
not merit protecting if one party commits fraud to induce the contract because
a party to a contract cannot rationally calculate the possibility that the other
party will deliberately misrepresent terms critical to that contract. While
parties, perhaps because of their technical expertise and sophistication, can
be presumed to understand and allocate the risks relating to negligent product
design or manufacture, those same parties cannot, and should not, be
expected to anticipate fraud and dishonesty in every transaction.
Id. (citations, brackets, and quotation marks removed). The allowance of tort damages,
including punitive damages, is also appropriate in order to deter fraud. Id. (citing Robinson
Helicopter Co. v. Dana Corp., 34 Cal. 4th 979, 992, 102 P.3d 268, 275 (2004)) (“[F]raud
is socially undesirable conduct that should be punished and deterred.”).
The broad fraud exception, like the economic loss rule itself, is not uniformly
devised. Compare Robinson Helicopter, 102 P.3d at 276 (articulating a narrow and limited
version of the broad fraud exception that requires proof that the plaintiff was exposed to
“liability for personal damages independent of the plaintiff’s economic loss”), with
Formosa Plastics Corp. USA v. Presidio Engineers & Contractors, Inc., 960 S.W.2d 41,
47 (Tex. 1998) (“Allowing the recovery of fraud damages sounding in tort only when a
plaintiff suffers an injury that is distinct from the economic losses recoverable under a
breach of contract claim is inconsistent with this well-established law, and also ignores the
fact that an independent legal duty, separate from the existence of the contract itself,
precludes the use of fraud to induce a binding agreement.”).
Finally, the Tennessee Supreme Court discussed three cases involving the third
permutation, the narrow or limited fraud exception. According to the supreme court, this
permutation originated in Huron Tool & Engineering Co. v. Precision Consulting
Services, Inc., 209 Mich. App. 365, 532 N.W.2d 541, 545 (1995), where the Michigan
Court of Appeals recognized an exception for fraud-in-the-inducement claims, but only if
the fraud is “extraneous to the contract,” not “interwoven with the breach of contract.”
22
Milan Supply Chain, 627 S.W.3d at 148 (quoting Huron Tool, 532 N.W.2d at 545). The
rationale behind this exception was explained by the Michigan court as follows:
Fraud in the inducement presents a special situation where parties to a
contract negotiate freely—which normally would constitute grounds for
invoking the economic loss doctrine—but where in fact the ability of one
party to negotiate fair terms and make an informed decision is undermined
by the other party’s fraudulent behavior.
Huron Tool, 532 N.W.2d at 545.
The Wisconsin Supreme Court adopted this narrow exception in Kaloti Enters., Inc.
v. Kellogg Sales Co., 283 Wis.2d 555, 699 N.W.2d 205, 220 (2005). That court held that
the narrow exception balances the purposes underlying the economic loss doctrine—i.e.,
the distinction between contract and tort and the protection of freedom to contract—with
the need for parties to have a background of truth and fair dealing in commercial
relationships. The court formulated the exception narrowly, however: “[t]ort law will apply
only under circumstances . . . where one party induces another to enter into a contract by
representing (or failing to disclose) a fact that would be material to the other party’s
decision to enter into the contract, but that concerns matters extraneous to the contract’s
terms.” Id. (emphasis added). Thus, the fraud must be “extraneous to, rather than
interwoven with, the contract.” Id. at 219.
The most recent case involving the narrow fraud exception discussed by the
Tennessee Supreme Court was Healthbanc Int’l, LLC v. Synergy Worldwide, Inc., 435
P.3d 193, 194 (Utah 2018). Citing both Huron Tool and Kaloti, the Utah Supreme Court
held that “there is no fraud exception that applies where the alleged fraudulent inducement
arises out of the very grounds alleged as a basis for a breach of contract action.” Id. In
reaching this conclusion, the court noted that Utah courts had previously recognized two
contexts in which to apply the economic loss rule: (1) “when no contractual relationship
exists between the parties and the plaintiff fails to prove either physical damage to other
property or bodily injury”; and (2) “when a contract exists to bar the parties from asserting
actions in tort when a conflict between the parties involves the subject matter of the
contract.” Milan Supply Chain, 627 S.W.3d at 150 (citing Healthbanc International, 435
P.3d at 196).
Under this second category of cases, a “blanket exception for fraud in the
inducement would undermine the central premises of the economic loss rule[.]” Id. (citing
Healthbanc International, 435 P.3d at 196). In other words, a broad exception “would
open the door to tort claims that directly overlap breach of contract claims. This blurring
of the line between tort and contract law is precisely what the economic loss rule is
designed to prevent.” Id. at 197. And with regard to the concerns of some courts as to
fraudulent inducements to enter into contracts, the Utah Supreme Court found such a
23
distinction “‘illusory’ ‘[w]hen the subject matter of the inducing promises [is] later
negotiated for and included in the contract.’” Milan Supply Chain, 627 S.W.3d at 150
(citing Healthbanc International, 435 P.3d at 197 (“To claim that a promise is independent
of a contract simply because it was spoken prior to the formation of a contract would open
the door to tort liability for all pre-contractual negotiations that were eventually enshrined
in a contract. This exception would swallow the rule. And we decline to endorse such an
exception.”)). Likewise, the court rejected a claim that a broad exception was necessary to
“avoid shielding intentional tortfeasors from liability[.]” Id. (citing Healthbanc
International, 435 P.3d at 197 (“Intentional bad acts are insufficient by themselves to
justify an exception to the economic loss rule. If the ‘bad acts’ (even intentional ones) are
covered by a contract, they remain in the realm of contract law. And contract law remains
sufficient to ‘punish’ the breaching party.”)).
Having detailed the forgoing options, the Tennessee Supreme Court “follow[ed] the
Utah Supreme Court” by declining “to announce a broad rule either extending the
economic loss rule to all fraud claims or exempting all fraud claims from the economic loss
rule.” Id. at 153. Instead, the Court held that where a situation involves a contract between
sophisticated commercial entities and the plaintiff seeks to recover economic losses only,
“the economic loss doctrine applies if the only misrepresentation[s] by the dishonest party
concern[ ] the quality or character of the goods sold.” Id. at 154 (quoting Huron Tool, 532
N.W.2d at 545). This rule, according to the supreme court, strikes “a careful balance”
between the “freedom of contract and the abhorrence of fraud.” Id.Appellants have maintained since the outset of this appeal that Commercial
Painting’s claim for intentional misrepresentation is barred by the economic loss rule
because the only losses that Commercial Painting alleges it suffered were economic.
Appellants therefore argue that Commercial Painting should be limited to the damages
authorized under the contract and that the claimed damages that were not authorized by the
parties’ contract but flow from the tort claim—namely the award of punitive damages and
pre- and post-judgment interest—should be reversed.
Commercial Painting does not appear to assert in this appeal that it is seeking
recovery of anything other than economic losses. Cf. Trinity Indus., Inc. v. McKinnon
Bridge Co., 77 S.W.3d 159, 173 (Tenn. Ct. App. 2001), abrogated on other grounds
by Bowen ex rel. Doe v. Arnold, 502 S.W.3d 102 (Tenn. 2016) (defining purely economic
losses as “essentially damages for failed commercial expectations, or loss of the benefit of
the bargain”). To be sure, Commercial Painting does not assert that it suffered any damage
as a result of property damage or personal injury. Instead, Commercial Painting has always
maintained that the economic loss rule simply did not bar it from raising a claim for
intentional misrepresentation regardless of the fact that it suffered only economic losses.
The core of Commercial Painting’s argument on this issue, however, has been
something of a moving target. In its initial brief, Commercial Painting’s central argument
24
was that the economic loss rule did not apply to any intentional torts. Following the Milan
Supply Chain opinion, however, Commercial Painting’s supplemental briefing focused not
on the tort that occurred in this case, but on the context of the claim, i.e., outside the realm
of products liability. And Commercial Painting pointed to the express holding of Milan
Supply Chain that there is no fraud exception if the misrepresentation that allegedly
induced a party to enter into a contract concerns “the quality or character of the goods
sold.” Id. Thus, Commercial Painting asserts in this appeal that neither the economic loss
rule nor the limited fraud exception recognized in Milan Supply Chain apply outside of
the products liability realm. Because this case does not involve the sale of goods or product
liability, Commercial Painting argues that the economic loss rule should not prohibit its
intentional misrepresentation claim and any of the damages that flow therefrom.
We are therefore called to determine two interrelated questions: (1) whether
Tennessee should adopt a version of the economic loss rule that limits a party to contractual
damages, rather than tort damages, in a case outside the product liability context; and if so
(2) whether the Milan Supply Chain limited fraud exception should apply in that situation.
To be sure, the Milan Supply Chain decision does not address this question directly. As a
result, we are essentially left to “read[] our [s]upreme [c]ourt’s tea leaves” to determine the
proper result in this case. Dolan v. USAA Cas. Ins. Co., No. 107247, 1998 WL 246409, at
*4 (Conn. Super. Ct. Apr. 6, 1998) (internal quotation marks omitted)
(“[R]eading our Supreme Court’s ‘tea leaves,’ this court holds that the FFR does not bar
the present action.”) (quoting State v. Brown, 14 Conn. App. 605, 629, 543 A.2d 750, 762
(1988) (“This court on occasion has taken the step of reading our Supreme Court’s
“tea leaves” and predicting that, because of intervening decisions, the court would overrule
prior cases and change its position.”); State v. Cooke, No. IN-05-06-1529, 2010 WL
3734113, at *31 (Del. Super. Ct. Aug. 19, 2010) (“One has to be careful
when reading tea leaves. If there were an opportunity for the Supreme Court to announce
a per se recusal rule, however, as Cooke argues, that was it, but it did not.”); E.H. by &
through Hemenway v. Auto. Club Inter-insurance Exch., 57 Kan. App. 2d 109, 118, 447
P.3d 382, 389 (2019) (“Our reading of the tea leaves in our Supreme Court’s O’Donoghue
opinion suggests that it would agree with ACIIE’s position.”).
Each party points to evidence in the Milan Supply Chain opinion of its own
position.14 Commercial Painting points, of course, to the express language of the supreme
court’s holding, which applies only to transactions involving goods. Milan Supply Chain,
627 S.W.3d at 154. Commercial Painting notes that this limitation harmonizes with the
court’s statement that it “has never applied the economic loss doctrine outside the products
liability context, in which it originated.” Id. at 153. Moreover, the court noted the confusion
that is engendered by applying the rule outside of the products liability context. Indeed, our
14
The Milan Supply Chain decision was issued following the close of briefing in this case. Both parties
were thereafter permitted to file supplemental briefs as to its effect, if any, on the issues presented in the
case-at-bar.
25
supreme court quoted several authorities that appear to take a dim view of the doctrine. Id.
at 145 (citing Tiara Condo. Ass’n, Inc. v. Marsh & McLennan Cos., Inc., 110 So. 3d 399,
407 (Fla. 2013) (calling the expansion of the doctrine “unwise and unworkable in
practice”)); Grams v. Milk Prods., Inc., 283 Wis.2d 511, 699 N.W.2d 167, 181 (2005)
(Abrahamson, C.J., dissenting) (comparing the doctrine to a villainous alien life form). As
a result, Commercial Painting argues that the Milan Supply Chain opinion “may well have
signaled that th[e] bounds [of the economic loss rule] need to be further limited in the
future.”
Appellants read the Tennessee Supreme Court’s tea leaves differently. Importantly,
Appellants point out that after discussing three different permutations of the narrow fraud
exception, the Tennessee Supreme Court favored the reasoning of the Utah Supreme Court
most heavily. Healthbanc International, of course, is itself a case outside the realm of
products liability. 435 P.3d at 194. As Appellants point out, the rationale behind the
adoption of a limited exception utilized by the Utah Supreme Court is therefore equally
applicable to other types of contracts.
Appellants also point out that while the Tennessee Supreme Court has not applied
the economic loss doctrine outside the products liability context, it has mentioned the
doctrine outside this context. See John Martin, 819 S.W.2d at 431 (considering whether
the plaintiff was entitled to recover for purely economic losses even though “[t]his is not a
products liability case.”). Following that lead, this Court has previously considered the rule
outside of the products liability arena. See Acuity v. McGhee Eng’g, Inc., 297 S.W.3d 718,
734 (Tenn. Ct. App. 2008) (holding that a claim for negligent misrepresentation was not
barred by the economic loss rule even though the plaintiff and defendant lacked privity);
United Textile Workers, 825 S.W.2d at 87 (barring a claim by plaintiffs for purely
economic losses caused by negligence when the plaintiffs had no contractual relationship
with the defendant).15 As a result of these and similar cases, at least one federal court has
concluded that the Tennessee Supreme Court would apply the economic loss rule in cases
that did not involve the sale of goods. See Ladd Landing, LLC v. Tennessee Valley Auth.,
874 F. Supp. 2d 727, 731 (E.D. Tenn. 2012) (disagreeing with Ham v. Swift Transp. Co.,
694 F. Supp. 2d 915, 922 (W.D. Tenn. 2010); Lott v. Swift Transportation, Inc., 694 F.
Supp.2d 923, 930–31 (W.D. Tenn. 2010)). All of our cases cited above, however, involve
the first type of fact-pattern outlined by the Utah Supreme Court where a party seeks to
hold another liable for economic damages in the absence of privity. See Healthbanc
International, 435 P.3d at 196. This case, of course, involves the second fact pattern where
the parties have a contract governing their rights and responsibilities.16 As such, these
authorities are not particularly helpful in resolving the dispute at issue here.
15
Again, however, these cases deal with the non-contractual economic loss rule.
16
The John Martin Opinion certainly cuts both ways in this case, as the Tennessee Supreme Court held
that the plaintiff could assert a claim for negligent misrepresentation despite a lack of privity. This Court,
however, has held that in the products liability context, no claim for negligent misrepresentation is viable.
See City of Franklin, 634 S.W.3d at 35.
26
While we agree that each party has valid and compelling arguments, we believe that
Appellants’ argument is more persuasive. First, we note that even the Tennessee Supreme
Court recognized that “most states have not limited the doctrine to the products liability
context[.]” Milan Supply Chain, 627 S.W.3d at 145. As the Milan Supply Chain opinion
readily reveals, Tennessee courts do not always adopt the majority approach to an issue.
Id. (adopting a non-majority narrow fraud exception). But Tennessee courts have found
persuasive the fact that a majority of jurisdictions have adopted a proposed rule. See, e.g.,
Morris v. State, 21 S.W.3d 196, 200 (Tenn. Ct. App. 1999) (“No Tennessee case has
recognized a parental cause of action for loss of society and companionship of an
emancipated adult child. The majority rule in sister jurisdictions is persuasive that no such
cause of action is viable.”).
One of those cases following the majority rule is Flagstaff Affordable Hous. Ltd.
P’ship v. Design All., Inc., 223 Ariz. 320, 223 P.3d 664 (2010). In Flagstaff, the Arizona
Supreme Court considered, as a matter of first impression, whether to extend the economic
loss rule to cases involving construction contracts. First, the court defined its preferred
definition of the doctrine as “a common law rule limiting a contracting party to contractual
remedies for the recovery of economic losses unaccompanied by physical injury to persons
or other property.” Id. at 667.
After detailing the history of the doctrine in Arizona, the Court considered whether
“the underlying policies of tort and contract law in the construction setting” support
application of the doctrine in that context. Id. at 669. According to the Arizona Supreme
Court,
The contract law policy of upholding the expectations of the parties
has as much, if not greater, force in construction defect cases as in product
defect cases. Construction-related contracts often are negotiated between the
parties on a project-specific basis and have detailed provisions allocating
risks of loss and specifying remedies. In this context, allowing tort claims
poses a greater danger of undermining the policy concerns of contract law.
That law seeks to encourage parties to order their prospective relationships,
including the allocation of risk of future losses and the identification of
remedies, and to enforce any resulting agreement consistent with the parties’
expectations.
Moreover, in construction defect cases involving only pecuniary
losses related to the building that is the subject of the parties’ contract, there
are no strong policy reasons to impose common law tort liability in addition
to contractual remedies. When a construction defect causes only damage to
the building itself or other economic loss, common law contract remedies
provide an adequate remedy because they allow recovery of the costs of
remedying the defects, and other damages reasonably foreseeable to the
parties upon entering the contract.
27
Id. at 669 (paragraph markers and citations omitted). Other courts have found this
reasoning persuasive or adopted similar reasoning. See Indianapolis-Marion Cty. Pub.
Libr. v. Charlier Clark & Linard, P.C., 929 N.E.2d 722, 735 (Ind. 2010) (citing Flagstaff);
Terracon Consultants W., Inc. v. Mandalay Resort Grp., 125 Nev. 66, 78, 206 P.3d 81,
89 (2009) (applying the economic loss rule in the context of a business construction
contract); see also Anderson Elec. v. Ledbetter Erection Corp., 115 Ill. 2d 146, 153, 503
N.E.2d 246, 249 (1986) (applying the economic loss rule to a services contract because the
only loss involved “disappointed commercial expectations” that could be recovered
through a breach of contract action).
Of course, some jurisdictions have taken a dimmer view of the economic loss rule
outside the product liability context. See, e.g., NM-Emerald, LLC v. Interstate Dev., LLC,
2021-NMCA-020, 488 P.3d 707, 712, ¶ 12 (declining to expand the economic loss rule to
construction cases not based on any analysis of the policy considerations at play, but based
on the inadequate briefing of the parties); Ins. Co. of N. Am. v. Cease Elec. Inc., 2004 WI
139, ¶ 32, 276 Wis. 2d 361, 375, 688 N.W.2d 462, 469 (relying on the Uniform
Commercial Code (“UCC”) to hold that the economic loss doctrine does not apply to
services contracts) (discussed in detail, infra). In particular, the Florida Supreme Court
fairly recently “return[ed] the economic loss rule to its origin in products liability.” Tiara
Condo. Ass’n, Inc. v. Marsh & McLennan Cos., Inc., 110 So. 3d 399, 407 (Fla. 2013).
While Commercial Painting apparently views the Tennessee Supreme Court’s reference to
this Opinion as signaling the limiting of the economic loss doctrine, we must view the
reference to Tiara Condominium Association in the context of the Milan Supply Chain
Opinion as whole. Id. at 153–54. Importantly, our high court declined to apply a broad
fraud exception even after noting that it had been adopted in more jurisdictions than the
narrow exception. Id. at 149. In Florida, however, their supreme court had previously held
that the economic loss rule did not bar claims for fraud. See id. at 402–03 (citing Indem.
Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532, 537 (Fla. 2004) (“Although
parties in privity of contract are generally prohibited from recovering in tort for economic
damages, we have permitted an action for such recovery in certain limited circumstances.
One involves torts committed independently of the contract breach, such as fraud in the
inducement.”); HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So.2d 1238 (Fla.
1996)). The Tennessee Supreme Court, then, apparently does not share the same level of
distaste for the economic loss doctrine as the Florida Supreme Court.
Instead, we must conclude that the reasoning employed by the Tennessee Supreme
Court in Milan Supply Chain hews most closely to the reasoning of those jurisdictions that
have extended the economic loss rule beyond its origination. For example, in Milan
Supply Chain, the Tennessee Supreme Court discussed the “scope and rationale” of the
economic loss rule as an attempt not to “disrupt the parties’ allocation of risk.” Milan
Supply Chain, 627 S.W.3d at 154 (quoting Lincoln General, 293 S.W.3d at 491).
According to the Arizona Supreme Court, this policy has even greater force in the
construction contract context, as contracts of this type are typically negotiated to have
28
specific provisions detailing the allocations of risks and specifying remedies. Flagstaff,
223 P.3d at 669.
The Tennessee Supreme Court also relied heavily on the Utah Supreme Court’s
reasoning that contract law provides an adequate remedy in this situation:
We are persuaded by the reasoning articulated by the Utah Supreme
Court, which, as noted earlier, recently explained:
Contract law seems sufficient to make wronged parties whole. When
the contract terms contain the grounds for the tort claim, we see no
reason to conclude that recovery under contract law is insufficient—
“when a party is merely suing to recover the benefit of its contractual
bargain, there is no inherent unfairness in limiting that party to a
breach-of-contract claim.” Wronged parties will still have access to
traditional contract damages for breach, including expectation
damages. And such parties will also have access to exceptional
contract remedies—liquidated damages, rescission, etc.—where
applicable. The possibility of liquidated damages seems particularly
salient. If the parties to a contract with express warranties are
concerned about the insufficiency of expectation damages[,] they can
bargain for liquidated damages. And where they fail to do so it seems
problematic for a court to make a better contract for them than the one
they negotiated—by importing tort remedies into the deal.
HealthBanc International, 435 P.3d at 197–98 (quoting [Louisburg Bldg. &
Dev. Co. v.] Albright, [45 Kan.App.2d 618,] 252 P.3d 597,] 622 [Kan. Ct.
App.] 2011).
Milan Supply Chain, 627 S.W.3d at 155. In fact, the Tennessee Supreme Court apparently
judged this particular passage from Healthbanc International so important as to quote it
in full twice in the Milan Supply Chain Opinion.
Like the Flagstaff court, we conclude that the concerns of the Utah Supreme Court,
as echoed by our own high court, apply with equal force in the products liability context as
in other commercial transactions between sophisticated parties. See Flagstaff, 223 P.3d at
669. Importantly, Tennessee law recognizes that our “‘public policy is best served
by freedom of contract. . . .’” Baugh v. Novak, 340 S.W.3d 372, 383 (Tenn. 2011) (quoting
Chazen v. Trailmobile, Inc., 215 Tenn. 87, 91, 384 S.W.2d 1, 3 (Tenn. 1964)). As the
supreme court has explained:
Tennessee, both in its statutory and case law, “recognize[s] a strong public
policy of individual autonomy, i.e. freedom of contract, as courts allow
29
parties to strike their own bargains, absent a supervening legal reason to
restrict that economic liberty.” 21 [Steven W.] Feldman[, Tennessee
Practice: Contract Law and Practice] § 1:6, at 17. [(2006)]. The course of
development of “[c]ontract law in Tennessee plainly reflects the public
policy allowing competent parties to strike their own bargains.” Ellis v.
Pauline S. Sprouse Residuary Trust, 280 S.W.3d 806, 814 (Tenn. 2009).
Baugh, 340 S.W.3d at 383.
As a result, Tennessee law has long held that courts cannot rewrite the contracts of
parties, even when the terms negotiated therein later prove burdensome or foolhardy. This
principle applies with equal force to contracts outside the sale of goods arena; indeed, it is
oft cited in cases involving construction contracts. See, e.g., Cameron Gen. Contractors,
Inc. v. Kingston Pike, LLC, 370 S.W.3d 341, 346 (Tenn. Ct. App. 2011) (“It is not the role
of the courts, even courts of equity, to rewrite contracts for dissatisfied parties.”); Baptist
Mem’l Hosp. v. Argo Const. Corp., 308 S.W.3d 337, 345 (Tenn. Ct. App. 2009) (“[T]his
is the allocation of risk to which the parties agreed in the sales contract, and this Court
cannot rewrite the parties’ contract because its terms later prove to be burdensome”).
When sophisticated commercial entities negotiate specific terms that waive certain types
of damages and remedies, no additional unfairness results when the transaction falls outside
the realm of products liability. Instead, in both cases, a party is merely suing to recover the
benefit of its bargain. Id. at 155 (quoting HealthBanc International, 435 P.3d at 197). And
according to the Arizona Supreme Court, when the breakdown of a construction contract
causes only economic losses, contract remedies provide an adequate remedy regardless of
the fact that products liability is not at issue. Flagstaff, 223 P.3d at 669.
Moreover, a party to a commercial construction contract is just as free as a party to
a sales contract to negotiate exceptional contract remedies, such as liquidated damages,
should they see fit. See id. (noting that a party to a construction contract can negotiate for
“other damages reasonably foreseeable to the parties upon entering the contract”). A focus
on remedies available under the UCC is therefore misguided. For example, in Ham v. Swift
Transp. Co., 694 F. Supp. 2d 915 (W.D. Tenn. 2010), a federal district court concluded
that the economic loss doctrine should not apply to services contracts on the basis that
parameters of the doctrine were laid out by the UCC. Id. at 922–23 (citing Ins. Co. of
North Am. v. Cease Elec. Inc., 276 Wis.2d 361, 688 N.W.2d 462, 467 (2004))
(“Application of the economic loss doctrine to cases involving defective products is not
surprising, the court reasoned, because the [UCC] sets forth the full series of rights and
remedies available to an aggrieved purchaser who suffers only economic losses.”).17
17
Although services contracts are specifically exempted from the economic loss doctrine under Wisconsin
law, it is not clear that all non-products liability contracts are exempted from the ambit of the rule.
Specifically, in Digicorp, Inc. v. Ameritech Corp., 2003 WI 54, 262 Wis. 2d 32, 662 N.W.2d 652, the
Wisconsin Supreme Court applied the economic loss rule to a case involving a contract authorizing the
plaintiff to sell and distribute the defendant’s products to consumers. Id. at 655. Although the case
30
Because the Tennessee Supreme in Ritter “echoe[d] that rationale” of the Wisconsin
Supreme Court, the district court declined to apply the economic loss rule to the services
contract at issue. Id. (citing Ritter, 912 S.W.2d at 133 & n.8).18 Thus, to this particular
federal district court, it is the UCC that provides the “justification” for the application of
the economic loss rule; where the UCC is inapplicable, neither should the economic loss
rule be applied. Id. at 923.
The Milan Supply Chain Opinion, however, does not bear out this reasoning. To
be sure, the Milan Supply Chain Opinion makes clear that the economic loss rule
originated in the context of products liability, where the UCC is applicable. Milan Supply
Chain, 627 S.W.3d at 153. But the Opinion does not in any way rely on UCC principles in
adopting its rule. In fact, the UCC is not mentioned in any fashion in the discussion of the
economic loss rule. Instead, the rationale echoed upon by the Milan Supply Chain court
was that of the Utah Supreme Court, which held that parties should be held to the damages
that they bargained for. Id. at 155 (quoting HealthBanc International, 435 P.3d at 197).
This rationale does not rest on the existence of UCC damages, but on contract principles
that are applicable even outside the products liability context. Cf. Argo Construction 308
S.W.3d at 345; see also Flagstaff, 223 P.3d at 669.
Moreover, at least one scholar has suggested that allowing the economic loss rule
to apply in any way when fraud is alleged would be to go against the UCC principles upon
which the economic loss rule was founded. Specifically, in Steven W. Feldman, The
Economic Loss Doctrine: Rescuing Contract from Drowning in A ‘Sea of Tort’, Tenn. B.J.,
April 2008, at 24, the author argued that Tennessee would and should “adopt the broad
position allowing full recovery for fraudulent inducement[.]” Id. at 28. The basis for this
prediction was the fact that the economic loss doctrine originated with the UCC:
The primary reason for this suggestion is the UCC itself, which marks the
boundaries of the economic loss doctrine. Tenn. Code Ann. § 47-1-103 says
that unless displaced by the UCC, the principles of law and equity pertaining
to fraud and misrepresentation “shall supplement its provisions.” To
the same effect, Tenn. Code Ann. § 47-2-721 says that remedies for material
misrepresentation or fraud include all remedies available under title 47,
chapter 2, for nonfraudulent breach. Therefore, it would violate Tennessee
statutory law and our state’s strong anti-fraud policy to deprive a plaintiff of
a full remedy for fraud because of the economic loss doctrine.
Id. (footnotes and some punctuation omitted).
tangentially involved products, the contract was not for the sale of goods and the theory of liability against
the defendant was not related to a defective product. Id. at 656. Although the Cease Electric court cites
Digicorp, it does not address this issue or explicitly overrule the prior case.
18
The same federal district court judge also came to this conclusion in Lott v. Swift Transportation, Inc.,
694 F. Supp.2d 923, 930–31 (W.D. Tenn. 2010). The reasoning in both Opinions is identical.
31
In Milan Supply Chain, however, the Tennessee Supreme Court chose not to look
to the roots of the economic loss doctrine to adopt a broad fraud exception. The
requirements of the UCC, then, were not the most important considerations for the
Tennessee Supreme Court in deciding how to apply the rule. Instead, when faced with
several viable choices, it chose to rely on “a version of the narrow fraud exception” adopted
outside the products liability context. See Milan Supply Chain, 627 S.W.3d at 155 (quoting
HealthBanc International, 435 P.3d at 197). Thus, while the UCC may have been the
progenitor of the economic loss rule, it is clear that Tennessee’s version of the economic
loss doctrine has expanded outside its origins.
Moreover, there is no dispute that in this case, like in Milan Supply Chain, the
contract was negotiated by sophisticated commercial entities. Thus, the only question
presented in this appeal is whether the economic loss rule should be extended to apply to
non-products liability contracts between sophisticated commercial entities, and, if so,
whether Commercial Painting’s fraud claim is an exception to the rule. And like the
Tennessee Supreme Court, our holding is limited only to that situation. See Milan Supply
Chain, 627 S.W.3d at 153–54 (limiting its narrow fraud exception to contracts “between
sophisticated commercial business entities”). Doing so defuses some of the concerns that
led other courts to conclude that the economic loss rule should not apply to non-sales
contracts. As explained by the United States Court of Appeals for the Seventh Circuit, the
concerns that prompted the Wisconsin Supreme Court to exempt services contracts from
the ambit of the economic loss rule are as follows:
Most service contracts, the Wisconsin Supreme Court reasoned (like those to
mow the lawn or unclog a drain), are oral and informal and parties rarely hire
attorneys to allocate risks and limit remedies. In many service contracts,
furthermore, the information disparities between the parties make it unlikely
that each party can negotiate the terms with the same level of bargaining
power.
Cerabio LLC v. Wright Med. Tech., Inc., 410 F.3d 981 (7th Cir. 2005) (internal citations
omitted) (citing Cease Elec., 688 N.W.2d at 470–71). But these “policy considerations . .
. are simply not at play” when “well-represented, sophisticated business parties drafted
complex, detailed agreements which could and indeed did allocate risks and assign
remedies.” Id. This court has previously expressed a similar sentiment that business
plaintiffs should not be permitted to avoid their contractual obligations by inventing a tort
action where a contract action suffices. See Trinity Industries, 77 S.W.3d at 172 (quoting
James J. White & Robert S. Summers, Uniform Commercial Code § 10–5, 580, 582–83
(4th ed. 1995)) (noting, in dicta, that “[c]ourts 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”). Because our holding is limited to contracts
negotiated by sophisticated commercial entities, these policy considerations are more than
32
accounted for without having to take a “sledgehammer” to destroy the rights and
obligations contained in the parties’ contract. Goff v. Elmo Greer & Sons Const. Co., 297
S.W.3d 175, 187 (Tenn. 2009) (“In circumstances where public policy imposes limitations
on the freedom of contract, Tennessee’s courts are well-advised to wield a scalpel rather
than a sledgehammer.”)
In sum, the Tennessee Supreme Court’s reasons for adopting a limited fraud
exception to the economic loss rule apply with equal force outside the products liability
context when the contract at issue was negotiated between sophisticated commercial
entities.19 Here, both parties are sophisticated commercial business entities. The parties’
contract was drafted after negotiation and investigation by the parties. The
misrepresentations as issue here clearly involved the subject matter of the parties’
agreement. Specifically, the question presented to the jury concerning Weitz’s intention
misrepresentation asked whether Weitz made false misrepresentations about the length of
time Commercial Painting would have to perform its work or about the amount of work
Commercial Painting would be required to perform. Issues of time, duration, and the scope
of work were covered by the Subcontract. There can also be little dispute that the damage
that allegedly resulted from Weitz’s tortious conduct completely overlaps with the damage
that resulted from their breach of contract; indeed, Commercial Painting insists in this
appeal that a single damage calculation included in an exhibit is proof of the damage that
resulted from all the various causes of action that it asserts. As a result, we must conclude
that Commercial Painting’s fraud claim is barred by the economic loss rule and must be
dismissed.
D.
Commercial Painting asserts that even if the economic loss rule is applicable to bar
it from raising a tort against Weitz, punitive damages may still be recovered under a
contract theory. In support, Commercial Painting first asserts that Commercial Painting II
“clearly stated that [] Commercial Painting had demonstrated a factual basis for an
intentional misrepresentation claim, and that if successful, [] Commercial Painting would
be entitled to pursue a claim for punitive damages.” Thus, Commercial Painting appears to
suggest that we are bound by that statement to allow punitive damages because the jury
found that Weitz committed fraud. What was actually stated by the Commercial Painting
II panel was that “[i]f Commercial Painting is successful on its intentional
misrepresentation claim against Weitz, it may be entitled to recover punitive damages in
addition to compensatory damages.” 2016 WL 3519015, at *12 (emphasis added). But
there was no discussion in that case of the economic loss doctrine, which we have held is
applicable to bar Commercial Painting from raising its intentional misrepresentation claim.
19
Like our supreme court, we decline to announce a broad rule that expands the economic loss rule to all
contracts that do not involve such parties.
33
As such, Commercial Painting II’s intentional misrepresentation claim is barred by
operation of law, and therefore not “successful.”
Commercial Painting next asserts that Tennessee law does not recognize a “blanket
prohibition against an award of punitive damages in a contract case.” We generally agree
with this statement. Punitive damages, while typically “not available in a breach of contract
case,” may be awarded in a breach of contract action under “certain
circumstances.” Rogers v. Louisville Land Co., 367 S.W.3d 196, 211 n.14 (Tenn. 2012)
(citations omitted). “[B]ecause punitive damages are to be awarded only in the most
egregious of cases, a plaintiff must prove the defendant’s intentional, fraudulent, malicious,
or reckless conduct by clear and convincing evidence.” Hodges v. S.C. Toof & Co., 833
S.W.2d 896, 901 (Tenn. 1992). Thus, the Tennessee Supreme Court appeared to equate
egregious conduct with conduct that was committed intentionally, fraudulently,
maliciously, or recklessly, so long as that culpability is proven by “evidence in which there
is no serious or substantial doubt about the correctness of the conclusions drawn from the
evidence.” Id. at 901 n.3; see also Vic Davis Constr., Inc. v. Lauren Engineers &
Constructors, Inc., No. E2017-00844-COA-R3-CV, 2019 WL 1300935, at *7 (Tenn. Ct.
App. Mar. 20, 2019) (“Punitive damages may be awarded for breach of contract but only
in the most egregious cases. The egregious cases are those with clear and convincing
evidence that the defendant acted intentionally, fraudulently, maliciously, or recklessly in
breaching the contract.”) (internal citation omitted) (citing Rogers, 367 S.W.3d at 211
n.14). But see Sanford v. Waugh & Co., 328 S.W.3d 836, 849 (Tenn. 2010) (suggesting
that egregiousness may be a separate issue from the culpable mental state: “[W]e agree
with the trial court that . . . a reasonable jury could not find by clear and convincing
evidence that the Waughs’ conduct was intentional, fraudulent, malicious, or reckless to
such an extent as to justify punitive damages, nor could it possibly be found to involve the
most egregious of wrongs.”).
Because the jury found that Weitz had engaged in the conduct meeting that
culpability level under the clear and convincing evidence standard, Commercial Painting
argues that this is the type of case in which punitive damages should be awarded.
Specifically, Commercial Painting asserts that our only inquiry should be whether material
evidence supports the jury’s finding that Weitz engaged in egregious conduct intentionally,
fraudulently, maliciously, or recklessly. See Flax v. DaimlerChrysler Corp., 272 S.W.3d
521, 532 (Tenn. 2008) (holding that even where the burden of persuasion at trial is clear
and convincing evidence, as in the case of the award of punitive damages, we utilize the
material evidence standard to review the jury’s verdict and do not reweigh the evidence).
We respectfully disagree. Importantly, as previously discussed, because the
economic loss rule is applicable here, Commercial Painting is limited to its own contract
remedies. See Milan Supply Chain, 627 S.W.3d at 152 (quoting Lincoln General, 293
S.W.3d at 491 (“[T]he remedies available . . . should derive from the parties’
agreements[.]”)); Milan Supply Chain COA, 2019 WL 3812483, at *3–4 (citing Goodman
34
et al., supra, at 55–56) (noting that the economic loss doctrine limits parties to “their
contractual remedies”). Unlike the typical cases in which punitive damages have been
awarded in breach of contract cases, the parties here agreed to specific provisions related
to the damages that could be recovered in relation to the Project. See, e.g., Goff v. Elmo
Greer & Sons Const. Co., 297 S.W.3d 175, 187 (Tenn. 2009) (affirming an award of
punitive damages in a nuisance/contract case, noting the four arguments against the award,
none of which involved any limitation on liability contained in the parties’ contract);
Concrete Spaces, Inc. v. Sender, 2 S.W.3d 901, 909 (Tenn. 1999) (holding that the plaintiff
could elect between statutory penalties and punitive damages, but mentioning no limitation
on liability contained in the parties’ contract nor any argument that the punitive damages
were barred by any such contractual provision); Dog House Invs., LLC v. Teal Properties,
Inc., 448 S.W.3d 905, 916 (Tenn. Ct. App. 2014) (mentioning no limitation on liability nor
any argument that the punitive damages were barred by such a contractual provision);20
Riad v. Erie Ins. Exch., 436 S.W.3d 256 (Tenn. Ct. App. 2013) (same); Mohr v.
DaimlerChrysler Corp., No. W2006-01382-COA-R3-CV, 2008 WL 4613584, at *14
(Tenn. Ct. App. Oct. 14, 2008) (same); see also Rogers, 367 S.W.3d at 212 (Tenn. 2012)
(holding that the breach of contract was not egregious enough to support a claim for
punitive damages; including no discussion of the terms of the contract vis-à-vis a limitation
on damages); cf. Sprint Sols., Inc. v. LaFayette, No. 2:15-CV-2595-SHM-CGC, 2018 WL
3097027, at *16 (W.D. Tenn. June 22, 2018) (awarding punitive damages with no
discussion of a contractual provision limiting liability or an argument based on such a
provision).21
In this case, item 11.6 of the Subcontract contains a rather broad limitation on
damages that precludes recovery of anticipatory profit or indirect, special, or consequential
damages. Even further, this section provides that Commercial Painting “specifically agrees
that it shall not be entitled to assert, and it hereby waives, any Claims in quantum meruit,
interest on late payments, or any other measure of damages other than as specifically
provided in items 11.4 and 11.5 above.” Items 11.4 and 11.5, however, authorize
Commercial Painting generally only to receive the agreed upon Subcontract Sum. Finally,
item 5.6 of the Subcontract provides that Commercial Painting is not entitled to any delay
damages attributable to breach of contract, tort, or conduct not contemplated by the parties.
20
We also note that some of the cases involving punitive damages in a breach of contract action suggest
that an accompanying tort may be required. See Vic Davis Construction, 2019 WL 1300935, at *7 (citing
Restatement (Second) of Contracts § 355 (Am. Law Inst. 1981) (“Punitive damages are not recoverable for
a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are
recoverable.”)); Dog House Investments, 448 S.W.3d at 916 (granting the punitive damages not on the
breach of contract, but on a claim of promissory fraud); Next Generation, Inc. v. Wal-Mart, Inc., 49
S.W.3d 860, 866 (Tenn. Ct. App. 2000) (“[I]n the absence of fraud, there is no basis for punitive
damages[.]”). In this case, the economic loss doctrine prevents Commercial Painting from asserting a tort
claim.
21
Likewise, none of the foregoing cases contained any indication that the economic loss rule was considered
by the court.
35
Commercial Painting argues in its brief, however, that item 5.6 does not waive
punitive damages and that item 11.6 only concerns “termination rights.” Appellants
contend that these provisions affect a waiver of punitive damages. In resolving this dispute,
we keep the following principles in mind:
The central tenet of contract construction is that the intent of the contracting
parties at the time of executing the agreement should govern. The purpose
of interpreting a written contract is to ascertain and give effect to the
contracting parties’ intentions, and where the parties have reduced their
agreement to writing, their intentions are reflected in the contract
itself. Therefore, the court’s role in resolving disputes regarding
the interpretation of a contract is to ascertain the intention of the parties
based upon the usual, natural, and ordinary meaning of the language used.
Pylant v. Spivey, 174 S.W.3d 143, 151 (Tenn. Ct. App. 2003) (internal quotation marks
and citations omitted). “All provisions in the contract should be construed in harmony with
each other, if possible, to promote consistency and to avoid repugnancy between the
various provisions of a single contract.” Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn.
1999).
The damages allowed under the Subcontract are governed by items 5.6, 11.4, 11.5,
and 11.6. It is true that items 11.4 and 11.5 appear to apply only in the event of termination
of the contract by Weitz—11.4 applying to termination for cause, while 11.5 applies to
termination without cause. But item 11.6 is not so limited. Instead, it provides that “[i]n no
event” shall Weitz be liable for damages for anticipatory profit, or indirect, special, or
consequential damages. Further, the item states that Commercial Painting waives “any”
damages not specified in items 11.4 and 11.5. Nothing in this particular provision indicates
that these waivers apply only in the event of termination of the contract. Thus, we must
conclude that item 11.6 provides for a limitation on damages that applies even outside the
context of termination by Weitz.
Furthermore, we must conclude that the limitations contained in items 11.4, 11.5,
and 11.6 constitute a broad and unqualified waiver of damages that are not among those
permitted under the Subcontract. Cf. Peregrine Pharms., Inc. v. Clinical Supplies Mgmt.,
Inc., No. SACV 12-1608 JGB ANX, 2014 WL 3791567, at *6 (C.D. Cal. July 31, 2014)
(citing Food Safety Net Servs. v. Eco Safe Sys. USA, Inc., 209 Cal.App.4th 1118, 1128,
147 Cal.Rptr.3d 634 (2012)) (holding that contractual language that “‘in no event’ is
[defendant] liable for consequential, incidental, special or indirect damages” was
“broad and unqualified language” that constituted a valid limitation on the plaintiff’s
claims). Specifically, item 11.6 limits the damages that can be recovered to only those
damages specified in items 11.4 and 11.5. These items limit the types of damages that may
be recovered to amounts related to the unpaid balance of the Subcontract Sum and for
“work properly and timely performed and for proven loss with respect to unused materials,
36
equipment, machinery, and tools[.]” Thus, these provisions clearly entitled Commercial
Painting to compensation for the work it performed and its own costs.22 Punitive damages,
however, are not intended to compensate a wronged party; they serve as punishment for
bad conduct. Coffey v. Fayette Tubular Prod., 929 S.W.2d 326, 328 (Tenn. 1996)
(“[P]unitive damages are not intended to compensate an injured plaintiff but may be
awarded by the jury for the purposes of punishing wrongdoers and deterring them from
similar conduct in the future.”). Because the Subcontract clearly provides that the damages
that are permitted are compensatory in nature and “any” other measure of damages was
waived by Commercial Painting, we must conclude that the award of punitive damages is
barred by the plain language of the parties’ agreement.
Commercial Painting offers no authority to suggest that a contractual waiver of
punitive damages is wholly unenforceable under any circumstances. Indeed, limitations on
liability are not disfavored in Tennessee:
Historically, the “freedom of contract” has insured “that parties to an
agreement have the right and power to construct their own bargains.” Blake
D. Morant, Contracts Limiting Liability: A Paradox with Tacit Solutions, 69
Tul. L. Rev. 715, 716 (1995). As with other types of contracts, the “terms of
a lease should be binding on the parties thereto unless there is some
overriding social policy that would be undermined by their
enforcement.” Restatement (Second) of Property, § 5.6 (1977). This Court
has consistently recognized that the right of parties to allocate liability for
future damages through indemnity clauses, generally, is not contrary to
public policy. See Crawford v. Buckner, 839 S.W.2d 754, 756 (Tenn.
1992); Houghland v. Security Alarms & Services, Inc., 755 S.W.2d 769,
773 (Tenn. 1988) (liability of burglar alarm service was limited by an
exculpatory clause); Turner, 503 S.W.2d at 191 (customer assumed the risk
of injury from negligence of a health spa); Chazen v. Trailmobile, Inc., 215
Tenn. 87, 384 S.W.2d 1 (1964) (commercial lease absolved both landlord
and tenant from liability for a loss resulting from fire); Moss v. Fortune, 207
Tenn. 426, 340 S.W.2d 902 (1960) (renter assumed the risk incident to injury
from the hiring and riding of a horse). Indeed, the allocation of risk agreed
to by parties with equivalent bargaining powers in a commercial setting
serves a particularly valid purpose where, as here, the contract delineates the
parties’ duty to obtain and bear the cost of insurance. See Evco Corp. v.
Ross, 528 S.W.2d 20, 23 (Tenn. 1975); Kellogg Co. v. Sanitors, Inc., 496
S.W.2d 472, 473 (Tenn.1973). Thus, even broad transfers of liability, where
unambiguous, should be honored.
22
Item 11.5 further provides that that the damages are limited to those recovered by Weitz from the owner.
This provision has no relevancy to the question of punitive damages, but only to the compensation that is
owed under the Subcontract.
37
Planters Gin Co. v. Fed. Compress & Warehouse Co., 78 S.W.3d 885, 892–93 (Tenn.
2002). Although the Planters Gin case speaks often in terms of indemnity clauses, this
Court has applied the rule to limitations on liability, such as are present in this case. See
Underwood v. Nat’l Alarm Servs., Inc., No. E2006-00107-COA-R3-CV, 2007 WL
1412040, at *5 (Tenn. Ct. App. May 14, 2007) (applying the Planters Gin framework to a
case involving a “limitation of liability/liquidated damages clause”). Courts from other
states have specifically held that contractual waivers of punitive damages may be upheld
in commercial contracts. See Bombardier Aerospace Corp. v. SPEP Aircraft Holdings,
LLC, 572 S.W.3d 213, 232 (Tex. 2019) (holding that a limitation of damages clause in a
commercial contract that prohibited the award of punitive damages was enforceable, even
where fraud occurred, because the party complaining did not seek to rescind the agreement
in its entirety, but chose to attempt to enforce the agreement without being bound by the
limitation on damages).23
There are, of course, some exceptions to this rule. See Planters Gin, 78 S.W.3d at
893 (discussing exceptions related to indemnity agreements in construction settings,
landlord/tenant agreements, and in medical settings). In a fashion, Commercial Painting
argues that one exception is present in this case: fraud. Specifically, Commercial Painting
argues that it defies logic to allow a party to take advantage of the limiting terms of a
contract when the contract was procured by fraud. Commercial Painting is correct, in part.
Specifically, the Tennessee Supreme Court has held that “[l]imitations against liability for
negligence or breach of contract have generally been upheld in this state in the absence of
fraud or overreaching.” Houghland, 755 S.W.2d at 773. The problem, of course, with this
argument is that under economic loss rule and the limited fraud exception adopted by the
Tennessee Supreme Court, Commercial Painting cannot utilize a claim of fraud to avoid
the consequences of its own contractual agreements. See Milan Supply Chain, 627 S.W.3d
at 155. Indeed, limiting parties to their agreed upon contractual remedies is the very
purpose of the economic loss rule when applicable to a situation that is governed by a
contract. See Milan Supply Chain COA, 2019 WL 3812483, at *4. And, when the rule is
applicable, this limitation applies even where fraud is present if the contract is between
sophisticated commercial entities and results in only economic losses, as is the case here.
See Milan Supply Chain, 627 S.W.3d at 155. As such, to allow punitive damages that have
been clearly waived under the Subcontract would essentially be to negate the entire purpose
of the economic loss rule as it applies in this specific case. We decline to do so. Because
Commercial Painting offers no other basis from which to avoid the consequences of its
own agreements, we reverse the award of punitive damages as not authorized by the
23
The parties agree that Commercial Painting abandoned its claim for rescission. Specifically, in its brief,
Commercial Painting asserts that it had the choice to either seek rescission of the contract “or take the
benefits of the contract it was fraudulently induced to enter, and pursue its damages available under the
contract.” According to Commercial Painting, it could not pursue rescission because it could not be placed
in the same position it occupied prior to the transaction. But as this case clearly shows, neither was
Commercial Painting satisfied with the “damages available under the contract.”
38
Subcontract. All remaining issues related to the punitive damages award are therefore
pretermitted.
E.
We next address Appellants’ contention that the trial court failed to independently
evaluate the jury’s verdict or act as the thirteenth juror in this case. In particular, Appellants
urge us to reverse the trial court’s ruling because “the record provides no insight into the
trial court’s decision-making process[,]” citing Smith v. UHS of Lakeside, Inc., 439
S.W.3d 303 (Tenn. 2014). Respectfully, Appellants’ argument misapprehends the proper
framework applicable to this question.
Importantly, UHS of Lakeside involved a question of summary judgment. Id. at
304. Under Rule 56.04 of the Tennessee Rules of Civil Procedure, “[t]he trial court shall
state the legal grounds upon which the court denies or grants [a] motion” for summary
judgment. The rule in UHS of Lakeside requiring the trial court to thoroughly explain its
reasoning applies as a result of this mandate. We have also expanded this rule to other cases
in which trial courts are required to explain their rulings, such as bench trials. See, e.g., In
re Colton B., No. M2017-00997-COA-R3-PT, 2017 WL 6550620, at *3 (Tenn. Ct. App.
Dec. 22, 2017) (“Thus, it appears that the holding in [UHS of Lakeside] is equally
applicable in other cases where trial courts are required to make findings of fact and
conclusions of law, such as following bench trials in termination proceedings.”).
It is true that trial courts are required to make findings of fact and conclusions of
law in support of punitive damages awards. See Hodges v. S.C. Toof & Co., 833 S.W.2d
896, 902 (Tenn. 1992) (“After a jury has made an award of punitive damages, the trial
judge shall review the award, giving consideration to all matters on which the jury is
required to be instructed. The judge shall clearly set forth the reasons for decreasing or
approving all punitive awards in findings of fact and conclusions of law demonstrating a
consideration of all factors on which the jury is instructed.”). But we have reversed the
award of punitive damages in this case. As such, the only remaining damages awarded by
the jury are the compensatory damages.
Appellants are correct that when the motion for new trial was filed, the trial court
was then “under a duty to independently weigh the evidence and determine whether the
evidence ‘preponderate[d]’ in favor of or against the verdict.” Blackburn v. CSX Transp.,
Inc., No. M2006-01352-COA-R10-CV, 2008 WL 2278497, at *6 (Tenn. Ct. App. May 30,
2008) (footnote omitted) (citing Woods v. Herman Walldorf & Co., Inc., 26 S.W.3d 868,
873 (Tenn. Ct. App. 1999); Shivers v. Ramsey, 937 S.W.2d 945, 947 (Tenn. Ct. App.
1996); Witter v. Nesbit, 878 S.W.2d 116, 121 (Tenn. Ct. App. 1993)). This role is referred
to as the “thirteenth juror.” Id. (citing Holden v. Rannick, 682 S.W.2d 903, 904–05 (Tenn.
1984)). When the trial court fulfills this duty, however, it is not required to make detailed
findings of fact or conclusions of law explaining its reasoning:
39
The discretion permitted a trial judge in granting or denying a new trial is so
wide that our courts have held that he or she does not have to give a reason
for his ruling. If the trial judge does give reasons, the appellate court will
only look to them for the purpose of determining whether the trial court
passed upon the issue and was satisfied or dissatisfied with the verdict. If the
trial judge does not give a reason for her action, the appellate courts will
presume she did weigh the evidence and exercised her function as thirteenth
juror.
Buckley v. Elephant Sanctuary in Tennessee, Inc., -- S.W.3d --, 2021 WL 2450456, at *5
(Tenn. Ct. App. June 16, 2021), perm. app. denied (Tenn. Oct. 14, 2021) (quoting
Blackburn, 2008 WL 2278497, at *7 (citation omitted)). Thus, a trial court need not make
detailed findings to support its approval of a jury verdict.
From our reading of Appellants’ brief, they do not take issue with the trial court’s
order approving the jury’s verdict or the order denying the motion for new trial. Instead,
they are primarily concerned with the December 12, 2018 order approving the award of
punitive damages; we, however, have reversed the award of punitive damages on other
grounds. Given that Appellant’s argument under UHS of Lakeside does not appear directed
specifically at the orders approving the compensatory damages and the law clearly provides
the trial court with wide discretion in approving a jury verdict, we decline to assign error
as to those orders. See Sneed v. Bd. of Pro. Resp. of Supreme Ct., 301 S.W.3d 603, 615
(Tenn. 2010) (“It is not the role of the courts, trial or appellate, to research or construct a
litigant’s case or arguments for him or her, and where a party fails to develop an argument
in support of his or her contention or merely constructs a skeletal argument, the issue is
waived.”).
Thus, we are left with the jury’s verdict awarding Commercial Painting
compensatory damages for breach of contract in the amount of $1,729,122.46. Although
the economic loss rule bars Commercial Painting from recovering in tort, it is clearly
entitled to seek compensation for breach of contract against Weitz. Throughout their brief,
Appellants take issue with the award of compensatory damages in various respects. For
example, in the facts section of their brief, Appellants question whether Commercial
Painting should be entitled to any compensatory damages when it made a profit on the
Project. In their conclusion, Appellants ask that the verdict from the 2016 bench trial of
$450,000.00 be reinstated. We note, however, that Appellants have not designated any
issue that the jury’s award of $1,729,122.46 for breach of contract was unsupported by
material evidence. See Crabtree Masonry Co. v. C & R Const., Inc., 575 S.W.2d 4, 5
(Tenn. 1978) (“It is the time honored rule in this State that in reviewing a judgment based
upon a jury verdict the appellate courts are not at liberty to weigh the evidence or to decide
where the preponderance lies, but are limited to determining whether there
is material evidence to support the verdict[.]”). Nor have they properly raised and argued
that this award is somehow barred by the Subcontract. As we previously explained, errors
40
are generally waived when they are not designated as issues, but merely argued in the body
of a brief. Childress v. Union Realty Co., 97 S.W.3d 573, 578 (Tenn. Ct. App. 2002).
Because Appellants designated no issue that would undermine the jury’s verdict for
compensatory damages, other than the issues we have already analyzed, we must affirm
the verdict of $1,729,122.46 in favor of Commercial Painting for breach of contract.
F.
The parties next dispute whether the trial court erred in awarding pre- and post-
judgment interest in this case. In support of its argument that an award of interest was not
authorized by the Subcontract, Appellants again cite item 11.6, which expressly provides
that Commercial Painting waives “any Claims . . . [for] interest on late payments, or any
other measure of damages other than as specifically provided in items 11.4 and 11.5
above.” In support of its claim for interest, however, Commercial Painting relies on
provisions of the Prime Contract that it argues were expressly incorporated into the
Subcontract. Specifically, Commercial Painting cites item 11.7 of the Prime Contract,
which specifically allows interest on “[a]ny amounts payable hereunder which are not paid
when due.” As support for its argument that this provision is applicable to a claim under
the Subcontract, Commercial Painting cites item 1.2 of the Subcontract, which provides
that Commercial Painting “shall be entitled to the same benefits and rights which [Weitz],
under the Prime Contract, is granted against the Owner.” Commercial Painting also cites a
portion of item 1.8, which provides that the “Subcontract Documents,” including the Prime
Contract, “form the contract between the parties thereto, and are as fully a part of the
Agreement as is attached therefore or repeated therein.”
The problem with Commercial Painting’s argument, however, is that it omits key
language from item 1.8 of the Subcontract. Specifically, item 1.8 states that “[i]n the event
of any conflicts in the Subcontract Documents, the provisions shall govern in priority in
the order listed in this Section 8.”24 Item 11.6 governing the damages available is contained
in Exhibit D to the Subcontract and is therefore fifth in the order of priority; the Prime
Contract is listed as ninth in the order of priority.25 So the Subcontract clearly provides that
where a conflict arises between the language of the Prime Contract and item 11.6, item
11.6 controls. Thus, the Subcontract clearly and unequivocally waives any claim for
24
Item 1.8 contains some caveats to this rule regarding issues of performance and conflict with large-scale
drawings. Neither is at issue here.
25
Specifically, item 1.8 states as follows:
The “Subcontract Documents” consist of (i) Exhibit F, any Modifications to the Standard
Form subcontract Agreement Between [Weitz] and [Commercial Painting] (“Agreement”)
entered into after the date of the Agreement; (ii) Exhibit A; (iii) the Agreement; (iv) Exhibit
C; (v) Exhibit D; (vi) Exhibit B; (vii) any other Exhibits to the Agreement in letter order;
(viii) [Commercial Painting’s] payment bond and its performance bond, if required; and
(ix) the Prime Contract.
41
interest on late payments. Again, Commercial Painting raises no argument that such an
agreement is unenforceable. Indeed, Commercial Painting points to a statute that generally
permits parties to contract regarding interest. See Tenn. Code Ann. § 47-14-123 (“In
addition, contracts may expressly provide for the imposition of the same or a different rate
of interest to be paid after breach or default within the limits set by § 47-14-103.”); see also
Tenn. Code Ann. § 47-14-103 (providing for maximum interest rates). As such, we must
conclude that Commercial Painting waived any claim for interest in this case. The award
of pre- and post-judgment interest is therefore reversed.
G.
The next issue involves attorney’s fees. The trial court awarded Commercial
Painting costs and attorney’s fees in the amount of $1,103,549.00. It is undisputed that the
Subcontract provides as follows:
In the event it shall become necessary for either party to institute legal
proceedings against the other party for recovery of any amounts due and
owing under the Agreement, it is expressly agreed that the prevailing party
in any such action shall be entitled to recover from the non-prevailing party
all costs, including reasonable attorney’s fees, of pre-suit collection attempts,
suit, and post judgment or settlement collection including those incurred on
appeal.
As our high court has explained of “mandatory fee award provision[s]” of this type:
Our courts long have observed at the trial court level that parties are
contractually entitled to recover their reasonable attorney’s fees when they
have an agreement that provides the prevailing party in a litigation is entitled
to such fees. In such cases, the trial court does not have the discretion to set
aside the parties’ agreement and supplant it with its own judgment. The sole
discretionary judgment that the trial court may make is to determine the
amount of attorney’s fees that is reasonable within the circumstances.
Eberbach v. Eberbach, 535 S.W.3d 467, 478 (Tenn. 2017) (citations omitted). When
attorney’s fees are limited to a “prevailing party,” however, the trial court must also
determine which party prevailed. According to the Tennessee Supreme Court:
A “prevailing party” is “[a] party in whose favor a judgment is rendered,
regardless of the amount of damages awarded.” Buckhannon [Board &
Care Home, Inc. v. West Virginia Department of Health & Human
Resources], 532 U.S. [598,] 603, 121 S.Ct. 1835 [149 L.Ed.2d 855 (2001)].
The Court has also noted that a party need not attain complete success on the
merits of a lawsuit in order to prevail. Rather, a prevailing party is
42
one who has succeeded “‘on any significant issue in litigation which
achieves some of the benefit the parties sought in bringing suit.’” Hensley v.
Eckerhart, 461 U.S. 424, 433, 103 S.Ct. 1933, 76 L.Ed.2d 40(1983) (quoting Nadeau v. Helgemoe, 581 F.2d 275, 278–79 (1st Cir.
1978)).
Fannon v. City of LaFollette, 329 S.W.3d 418, 431 (Tenn. 2010).
Commercial Painting contends that it was the prevailing party in the trial court. As
such, it asserts that the attorney fees award by the trial court should be affirmed, and asks
that it be awarded attorney’s fees on appeal. In contrast, Appellants assert that Commercial
Painting should not be awarded any attorney’s fees; Appellants do not, however, seek an
award of attorney’s fees in their favor, either at trial or on appeal.
We conclude that despite the reversal of much of the damages in this case,
Commercial Painting did prevail in the trial court, in that it was awarded substantial
compensatory damages. Because the costs and attorney’s fees awarded by the trial court
do not segregate those costs and fees solely associated with the compensatory damages
award, however, we deem it necessary to vacate the award and remand to the trial court for
reconsideration. On remand, the trial court shall determine the reasonable costs and
attorney’s fees incurred by Commercial Painting in securing the award of compensatory
damages in the trial court proceedings. We must conclude, however, that in obtaining
reversal of a significant portion of the damages awarded by the jury in this appeal,
Appellants are properly termed the prevailing party of this appeal. Commercial Painting is
therefore not entitled to attorney’s fees incurred on appeal.
IV. CONCLUSION
The judgment of the trial court is affirmed in part, reversed in part, vacated in part,
and remanded for further proceedings consistent with this Opinion. Costs of this appeal are
taxed to Appellee Commercial Painting, Inc., for which execution may issue if necessary.
S/ J. Steven Stafford
J. STEVEN STAFFORD, JUDGE
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