Carhartt, Inc. v. Innovative Textiles, Inc.

Filing 206

OPINION and ORDER Granting in Part 141 MOTION for Summary Judgment; and Denying in Part 151 MOTION for Summary Judgment. Signed by District Judge Judith E. Levy. (WBar)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
Carhartt, Inc.,
Plaintiff,
v.
Innovative Textiles, Inc., and
Innovative Textiles, LLC,

Case No. 17-13604
Judith E. Levy
United States District Judge
Mag. Judge R. Steven Whalen

Defendants/
Third-Party
Plaintiffs,

v.
Gentry Mills, Inc.,

Third-Party
Defendant.
________________________________/
OPINION AND ORDER GRANTING IN PART INNOVATIVE
TEXTILES, LLC’S MOTION FOR SUMMARY JUDGMENT [141]
AND DENYING IN PART CARHARTT, INC.’S MOTION FOR
SUMMARY JUDGMENT [151]
Carhartt Inc. sued Innovative Textiles, Inc. and Innovative
Textiles, LLC alleging seven counts: (1) breach of contract, (2) breach of
express and implied warranties, (3) negligence, (4) fraud, (5) silent fraud,
(6) innocent misrepresentation, (7) false advertising under the Lanham

Act, and (8) successor liability against Innovative Textiles, LLC. 1 (ECF
No. 82.) Innovative’s summary judgment motion is granted as to
Carhartt’s negligence claim, fraud claims, and Lanham Act claim.
Carhartt’s cross motion for summary judgment is denied as to its
negligence claim for the reasons set forth below. 2
I.

Background

This case involves fabric that Carhartt uses to make garments that
it markets as flame-resistant. (ECF No. 151, PageID.68.) Innovative
develops flame-resistant fabrics that contain modacrylic fibers, which are
acrylic

fibers

with

flame-resistant

properties.

(ECF

No.

141,

PageID.5732–33.) Carhartt contracted with Innovative for development
of a flame-resistant fleece fabric known as Style 2015, which is the fabric
at issue in this case. (ECF No. 151, PageID.6196.)

Innovative Textiles, Inc. transferred its assets to Innovative Textiles, LLC in
2015. (ECF No. 157, PageID.6839.) Innovative asserts that, “the distinction between
these companies is not relevant to the issues addressed in this motion.” (Id.)
Accordingly, both Innovative Textiles, Inc. and Innovative Textiles, LLC will be
referred to as “Innovative.”
1

Carhartt and Innovative’s cross-summary judgment motions on Carhartt’s
breach of contract and breach of warranty claims, and Gentry Mills’ summary
judgment motion on Innovative’s breach of contract claim, will be addressed in a
separate opinion and order. (ECF Nos. 141, 148, 151.)
2

2

Innovative does not manufacture the fabric it designs. (ECF No.
141, PageID.5733.) Rather, it hires knitters to knit yarn into fabric and
finishers to finish the fabric. (Id.) Fabric “finishing” in this case includes
the process of taking the fabric from the knitter, dying the fabric,
applying additional chemicals such as a product known as “durable water
repellant,” and curing those chemicals. (ECF No. 148, PageID.5962-63,
5966–67.) For Style 2015, Innovative contracted with Gentry Mills to
perform the finishing. (ECF No. 141, PageID.5733.)
Carhartt relied on Innovative to conduct flame-resistance testing
before shipping finished Style 2015 fabric to Carhartt.3 (ECF No. 141-11,
PageID.5817.) Innovative had Gentry Mills send a portion of the finished
fabric for testing to a third-party lab called Diversified Testing before
shipping the fabric to Carhartt. (ECF No. 141 PageID.5734.) Beginning
in 2012, Innovative also obtained certification from Underwriters
Laboratories, known as UL, which conducted extensive testing to satisfy

Innovative asserts that Carhartt always retained the right and ability to
conduct its own tests for flame-resistance once it received finished Style 2015 fabric.
(ECF No. 141.) Carhartt disputes that it would have “caught the latent defect” even
if it had conducted the tests at the time it received the fabric. (ECF No. 167,
PageID.7302.)
3

3

the National Fire Protection Association Standard 2112. (ECF No.141,
PageID.5744; ECF No. 167, PageID.7302–03.)
On or around June 2016, however, Carhartt tested finished pieces
of Style 2015 and discovered the pieces did not meet its specifications.
(ECF No. 141-11, PageID.5818.) Carhartt notified Innovative, which then
tested samples of Style 2015 fabrics dating back to 2014, and found that
the samples did not pass. (ECF No. 167, PageID.7305.) Carhartt issued
a “voluntary product notification,” essentially a voluntary recall, of the
garments that had been made from Style 2015. (ECF No.141
PageID.5736.) No one reported any injuries from the products made from
Style 2015. (Id.)
During the parties’ 2016 investigation of the root cause for the
testing failures, Carhartt contends it discovered that in approximately
2013, Innovative switched from a modacrylic fiber called Protex-C to a
different fiber called F-12. (ECF No.167, PageID.7303.) Carhartt
attributes the fire resistance test failures to Innovative’s fiber change.
(Id. at 7304.) It alleges that Innovative breached the parties’ contract by
switching fabrics and failing to disclose the change to Carhartt. (Id.)

4

Innovative disagrees and alleges that it “occasionally mentioned”
the fabric switch. (ECF No. 141, PageID.5733.) Innovative contends that
its contact with Carhartt required only that it use modacrylic fiber, “but
did not specify a particular kind of modacrylic fiber.” (Id.) Innovative
also argues that there “was no difference” between the new and the old
fabric. (ECF No. 141, PageID.5736.)
Carhartt additionally argues that, unbeknownst to it, Style 2015
failed its annual UL certification testing in 2014 and “obtained numerous
test results showing failures” in 2015 and 2016, in breach of their
contract. (ECF No.167, PageID.7304.) Innovative argues that Carhartt’s
specifications “do[] not require Innovative Textiles to guarantee that its
products will comply with Carhartt’s specifications in perpetuity.” (ECF
No. 141, PageID.5744.) Innovative also claims that the fabric did “satisfy
those specifications when originally delivered to Carhartt,” and that the
failures well after-the-fact were due to aging, improper storage, and other
factors not attributable to Innovative. (Id.)
Innovative further argues that the testing failures were the fault of
Gentry Mills’ improper finishing. Specifically, Innovative argues that
Gentry Mills’ application of durable water repellant, improper curing,
5

and machinery problems caused Style 2015 to fail the flammability tests.
(ECF No. 157, PageID.6839–44.)
Gentry Mills argues that Innovative selected the durable water
repellant

chemical

composition

and

controlled

the

finishing

specifications, which Gentry Mills followed exactly. (ECF No. 148,
PageID.5966–67.) It also argues that it never knew the test failure
results, nor had any notice of performance issues, until 2016 because lab
results went directly to Innovative, and not to Gentry Mills. (Id.)
Carhartt sued Innovative in November 2017. (ECF No. 1.)
Innovative then brought a third-party complaint against Gentry Mills.
(ECF No. 8.) The only remaining claim against Gentry Mills is
Innovative’s breach of contract claim. (ECF No. 53.) For the reasons set
forth below, Innovative’s motion for summary judgment is granted in
part (ECF No. 141) and Carhartt’s motion for summary judgment is
denied in part.
II.

Legal Standard

Summary judgment is proper when “the movant shows that there
is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The Court may not
6

grant summary judgment if “the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). The Court “views the evidence, all
facts, and any inferences that may be drawn from the facts in the light
most favorable to the nonmoving party.” Pure Tech Sys., Inc. v. Mt.
Hawley Ins. Co., 95 F. App’x 132, 135 (6th Cir. 2004) (citing Skousen v.
Brighton High Sch., 305 F.3d 520, 526 (6th Cir. 2002)).
III. Analysis
A.

Negligence and Fraud Claims

Counts IV through VII in Carhartt’s complaint involve negligence
and fraud claims. (ECF No. 82.) Both Carhartt and Innovative crossmove for summary judgment on these claims. For the reasons set forth
below, Innovative’s motion for summary judgment is granted and
Carhartt’s motion for summary judgment is denied as to these claims.
The parties do not dispute that Michigan law applies to Carhartt’s
claims against Innovative. 4 The Michigan Supreme Court adopted the
economic loss doctrine, which bars recovery for tort claims brought by a

North Carolina law governs Innovative’s breach of contract claim against
Gentry Mills, but is not applicable to the claims addressed here.
4

7

plaintiff seeking relief for solely economic loss arising out of an alleged
breach of contract. See Neibarger v. Universal Coops., Inc., 439 Mich. 512,
515–17 (1992). In Neibarger, the Michigan Supreme Court explained:
The economic loss doctrine, simply stated, provides that “[w]here
a purchaser's expectations in a sale are frustrated because the
product he bought is not working properly, his remedy is said to
be in contract alone, for he has suffered only ‘economic’ losses.”
This doctrine hinges on a distinction drawn between
transactions involving the sale of goods for commercial purposes
where economic expectations are protected by commercial and
contract law, and those involving the sale of defective products
to individual consumers who are injured in a manner which has
traditionally been remedied by resort to the law of torts.
Id. at 521–22 (internal citations omitted); see also Bev Smith, Inc. v.
Atwell, 301 Mich. App. 670, 688 (2013) (holding that the plaintiff’s fraudin-the-inducement, fraudulent misrepresentation, and silent fraud
claims were barred by the economic loss doctrine because they
“essentially reiterated the allegations set forth in plaintiff’s breach of
contract claim.”); and see General Motors Corp. v. Alumi-Bunk, Inc., 482
Mich. 1080, 1080 (2008) (Young, J., concurring) (“[T]here is no way to
characterize these identical allegations as separate claims for breach of
contract and fraudulent inducement.”).
1.

Negligence
8

With respect to Carhartt’s negligence claim, Innovative argues that
the allegations “concern the quality of Innovative Textiles’ product. They
focus on Carhartt’s frustrated expectations as a buyer.” (ECF No. 141,
PageID.5749.) Innovative argues that the duties and alleged losses arise
out of the parties’ contract. (Id.) Consequently, Carhartt’s claims are
barred under the economic loss doctrine. (Id.)
In response, Carhartt argues that its negligence claim should
survive summary judgment because Innovative breached certain noncontractual duties. (ECF No. 167, PageID.7315.) Those duties were: “(1)
a duty to test Style 2015 properly, and (2) a duty to disclose material
changes to Style 2015 and testing failures at UL. A general duty of care
encompasses both of these duties.” (Id.)
Carhartt also argues that summary judgment should be granted in
its favor on this claim. (ECF No. 151, PageID.6214.) It argues, in essence,
that the duties Innovative breached arose out of “industry standards and
the 2112 standard itself,” which were outside of the parties’ contract. (Id.
at 6214–15.)
Carhartt cites to two non-binding Michigan court of appeals cases
in support of its motion. The first, Challenge Mach. Co. v. Mattison Mach.
9

Works, 138 Mich. App. 15, 26–27 (1984) involved parties to a contract for
the purchase of a grinder machine. The plaintiff brought both breach of
contract and warranty claims as well as a claim for negligent installation
of the machine against the defendant. The court found that claims related
to the machine’s installation were sufficiently “separate from its breach
of warranty claims,” such that the plaintiff could maintain a separate
negligence claim against the defendant. “Negligent performance of an
undertaking, even though grounded upon a contractual relationship, may
constitute an actionable tort as well as a breach of contract. Id. at 27
(internal citations omitted.)
Here, the alleged negligent performance Carhartt claims is not
separate from its other claims; indeed, Carhartt’s negligence theories
relate to the terms of the contract between the parties and are “identical
allegations.” General Motors Corp., 482 Mich. 1080 (Young, J.,
concurring). Moreover, Challenge predates Neibarger, and did not
include the analysis of the economic loss doctrine that Neibarger sets
forth.
The second case Carhartt cites, Conant v. State Farm Fire & Cas.
Co., No. 260524, 2006 WL 1411216 (Mich. Ct. App. May 23, 2006), is an
10

unpublished Michigan court of appeals decision that presents an entirely
different set of facts and interests than are present here and is
inapplicable. 5 To rely on these cases would be, as Innovative aptly argues,
“out-of-step with current Michigan Supreme Court jurisprudence.” (ECF
No. 162, PageID.7058–59.)
Carhartt and Innovative’s contract contains flammability and fiber
content specifications. (ECF 141-5, PageID.5792.) These are the very
terms that Carhartt argues were breached; but because they are written
into the terms of the contract, they cannot form the basis for a tort claim.
Accordingly, the economic loss doctrine bars Carhartt’s negligence claim.
In conclusion, Innovative’s motion for summary judgment on
Carhartt’s negligence count is granted and Carhartt’s motion for
summary judgment on this claim is denied. The negligence claim is
dismissed.

In Conant, the court found a non-contractual tortious duty could exist where
an insurance company committed “malfeasance” and “active[] negligen[ce]” in
carrying out its duties to inspect claims. Id. The court of appeals found that as a
matter of policy, to rule otherwise could “grant insurers unfettered ability, when
taken to its logical extent, to act negligently, wantonly, and intentionally and
conceivably destroy a home or wreak havoc all in the name of conducting an
investigation on a claim, without being subject to liability simply because a contract
existed between the insured and the insurer.” Id. *4. This case bears no resemblance
to Conant.
5

11

2. Fraud
Next, Innovative moves for summary judgment on Carhartt’s fraud
claims. 6 (ECF Nos. 141, 151.) Again, Innovative argues that the economic
loss doctrine applies because Carhartt’s fraud theories concern “the
quality and characteristics” of the product at issue. (ECF No. 141,
PageID.5750.) For the same reasons set forth above regarding Carhartt’s
negligence claim, the economic loss doctrine applies and these claims
must be dismissed.
Carhartt’s fraud theories reflect “a concern about the quality
expected by the buyer and promised by the seller, which is the essence of
a warranty action under the UCC.” Huron Tool and Eng’g Co. v. Precision
Consulting Servs, Inc., 209 Mich. App. 365, 369–70 (1995) (citing
Neibarger, 439 Mich. at 531.) Carhartt’s fraud claims are grounded in
contract, and therefore the economic loss doctrine applies to bar these

Carhartt does not cross-move for summary judgment against Innovative on
its fraud counts. (ECF No. 151.) The Court acknowledges that Carhartt’s response to
Innovative’s summary judgment motion argues that “it is the party entitled to
summary judgment,” rather than Innovative, on this issue. (ECF No. 167,
PageID.7321.) The Court declines to consider this single sentence as a properly
presented motion, particularly where Carhartt did not include this argument in its
motion for summary judgment. (ECF No. 151.) See Desparios v. Perrysberg Exempted
Vill. Sch. Dist., 455 Fed. App’x 659, 666 (6th Cir. 2012) (citing Tucker v. Union of
Needletrades, Indus. and Textile Emp., 407 F.3d 784, 787–88 (6th Cir. 2005)).
6

12

claims. See Bev Smith, 301 Mich. App. at 688 (holding that the plaintiff’s
fraud claims were barred by the economic loss doctrine).
Carhartt also argues that a fraud-in-the-inducement theory of
liability

applies.

ECF

No.

167,

PageID.7318–21.)

Fraud-in-the-

inducement has been recognized by the Michigan court of appeals as an
exception to the economic loss doctrine. See Huron Tool, 209 Mich. App.
at 370–71.
Fraud-in-the-inducement “addresses a situation where the claim is
that one party was tricked into contracting. It is based on pre-contractual
conduct which is, under the law, a recognized tort.” Id. at 371 (citing
Williams Electric Co. Inc. v. Honeywell, Inc., 772 F.Supp. 11225, 123738
(N.D. Fla., 1991).)
To establish a claim for fraudulent inducement under Michigan
law, Carhartt must allege that:
(1) the defendant made a material representation; (2) the
representation was false; (3) when the defendant made the
representation, the defendant knew that it was false, or made it
recklessly, without knowledge of its truth and as a positive
assertion; (4) the defendant made the representation with the
intention that the plaintiff would act upon it; (5) the plaintiff
acted in reliance upon it; and (6) the plaintiff suffered damage.

13

Custom Data Solutions, Inc. v. Preferred Capital, Inc., 274 Mich. App.
239, 243 (2006) (citations omitted).
Those allegations must be supported by evidence to overcome a
motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 252 (1986) (stating that at the summary judgment stage, the judge
“unavoidably asks whether reasonable jurors could find by a
preponderance of the evidence that the plaintiff is entitled to a verdict—
‘whether there is [evidence] upon which a jury can properly proceed to
find a verdict for the party producing it, upon whom the onus of proof is
imposed.’”)
Carhartt argues that Innovative’s representations “induced
Carhartt to continuously and repeatedly issue purchase orders for Style
2015 fabric.” (ECF No. 167, PageID.7320.) However, beyond that,
Carhartt does not cite to any evidence regarding Innovative’s alleged
misrepresentation,

such

as

when

the

misrepresentation

or

misrepresentations occurred, who made them, whether the individual or
individuals making them had knowledge of their falsity or were reckless
in making them, or any other facts that would support its claim.

14

Accordingly, the fraud-in-the-inducement exception to the economic
loss doctrine does not apply. Innovative’s motion for summary judgment
is granted and Carhartt’s fraud and fraud-in-the-inducement claims are
dismissed.
B.

Lanham Act Claim

Innovative’s motion for summary judgment on Carhartt’s Lanham
Act claim is also granted. The Lanham Act allows a party damaged by
false commercial advertising to bring a civil action. 11 U.S.C. §1125(a).
Section 1125(a) creates two distinct bases for liability: false association,
and false advertising. Id. Here, Carhartt alleged false advertising. (ECF
No. 82.) The false advertising provision of the Lanham Act provides, in
relevant part:
(1) Any person who, on or in connection with any goods or
services, or any container for goods, uses in commerce any word,
term, name, symbol, or device, or any combination thereof, or
any false designation of origin, false or misleading description of
fact, or false or misleading representation of fact, which—
(B) in commercial advertising or promotion, misrepresents the
nature, characteristics, qualities, or geographic origin of his or
her or another person's goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that
he or she is or is likely to be damaged by such an act.
15

15 U.S.C. §1125(a).
The analytical framework for deciding a party’s standing to
maintain a Lanham Act false advertising claim must start with whether
the plaintiff’s “interests fall within the zone of interests protected by the
law invoked.” Lexmark Intern., Inc. v. Static Control Components, Inc.,
574 U.S. 118, 129 (2014) (internal citations omitted). Although the zone
of interests test is “not especially demanding,” id., it must still “allege an
injury to a commercial interest in reputation or sales.” Id. Moreover, it
excludes certain types of claims:
A customer who is hoodwinked into purchasing a disappointing
product may well have an injury-in-fact cognizable under Article
III, but he cannot invoke the protection of the Lanham Act—a
conclusion reached by every Circuit to consider the question.
Even a business misled by a supplier into purchasing an inferior
product is, like consumers generally, not under the Act’s aegis.
Id. (internal citations omitted).
Innovative argues that Carhartt’s Lanham Act claim fails as a
matter of law because (1) Carhartt is not within the “zone of interests”
protected under the Lanham Act because it does not allege an injury to a
commercial interest in its reputation or sales; (2) there is no evidence of
an injury “flowing directly” from deceptive advertising; and (3) Carhartt
16

never identifies the specific advertising at issue. (ECF No. 141,
PageID.5751–55.)
In response, Carhartt points to its allegation that it “clearly alleged
an ‘injury to a commercial interest in reputation [and] sales.’” (ECF No.
167, PageID.7322.) Carhartt asserts that Innovative made “numerous
false and misleading statements about its fabric [meeting safety
standards] in its advertisements and on its website . . .,” which influenced
Carhartt’s purchasing decisions. (ECF No. 82, PageID.3655.)
Carhartt also argues that it “invested substantial resources in the
development of the garment line, forgoing development of other
development [sic] in favor of utilizing Style 2015 fabric and made
representations to customers regarding the properties and quality of the
products containing ITI’s fabric.” (Id. at PageID.7322–23.) Carhartt does
not, however, submit any documentary or other evidence in support of
this argument. Without more, Carhartt’s arguments are exactly the types
of claims excluded under Lexmark, which requires more than an
allegation that a customer was “hoodwinked into purchasing a
disappointing product.” Lexmark, 574 U.S. at 129.

17

Carhartt’s reliance on these allegations are not enough to overcome
Innovative’s motion for summary judgment on its Lanham Act claims.
Carhartt has not demonstrated that there is an issue of material fact
appropriate for trial. Accordingly, Innovative’s motion for summary
judgment as to Carhartt’s Lanham Act claim is granted and this claim is
dismissed.
IV.

Conclusion

For the reasons set forth above, the Court GRANTS in part
Innovative’s motion for summary judgment (ECF No. 141) and DENIES
in part Carhartt’s motion for summary judgment (ECF No. 151).
IT IS SO ORDERED.
Dated: February 24, 2020
Ann Arbor, Michigan

s/Judith E. Levy
JUDITH E. LEVY
United States District Judge

CERTIFICATE OF SERVICE
The undersigned certifies that the foregoing document was served upon
counsel of record and any unrepresented parties via the Court’s ECF System to their
respective email or First Class U.S. mail addresses disclosed on the Notice of
Electronic Filing on February 24, 2020.
s/William Barkholz
WILLIAM BARKHOLZ
Case Manager

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