Ladd Landing, LLC et. al. v. Tennessee Valley Authority (TV2)
Filing
80
MEMORANDUM AND OPINION as set forth in following order.Signed by District Judge Thomas A Varlan on 6/14/12. (ABF)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
AT KNOXVILLE
LADD LANDING, LLC, et al.,
Plaintiffs,
v.
TENNESSEE VALLEY AUTHORITY,
Defendant.
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No.:
3:11-CV-596
(VARLAN/GUYTON)
MEMORANDUM OPINION
This civil action is before the Court on defendant, Tennessee Valley Authority’s
(“TVA’s”), Motion for Judgment on the Pleadings as to Three Plaintiffs, Eye Centers of
Tennessee, LLC, Browder Hardware Inc., and Sean D. Stephens, for Failure to State a Claim
Upon Which Relief Can Be Granted [Doc. 13]. In the motion, TVA asserts that these
plaintiffs cannot recover for solely economic loss without any allegation of injury to person
or physical damage to property. Plaintiffs have responded in opposition [Doc. 21] to TVA’s
motion, and TVA has filed a reply brief [Doc. 36]. After carefully considering the parties’
arguments and the relevant law, and for the reasons stated herein, TVA’s motion [Doc. 13]
will be GRANTED and the claims of plaintiffs, Eye Centers of Tennessee, LLC, Browder
Hardware Inc., and Sean D. Stephens, will be DISMISSED from this action.
I.
Relevant Facts
This action, brought by forty-four plaintiffs, arises out of the December 22, 2008
failure of a coal ash containment dike at TVA’s Kingston Fossil Plant (the “KIF plant”). See
Mays v. TVA, 699 F. Supp. 2d 991, 1000-04 (E.D. Tenn. 2010). As a result of this dike
failure, approximately 54 million cubic yards of coal ash sludge spilled from an 84-acre
containment area to an adjacent area of about 300 acres, consisting of primarily the Watts
Bar Reservoir, the Clinch and Emory Rivers, and government and privately owned shoreline
properties. Id. In general, plaintiffs allege that they own property and/or own and conduct
business in the area of the coal ash spill and that TVA is liable to them in tort under theories
of negligence, gross negligence, trespass, strict liability, nuisance, and negligence per se for
alleged damages to real and personal property, diminution in value of real property and/or
lost rental value, lost revenue and profit, loss of income, and loss of use and enjoyment of
real property and/or business losses, all arising and caused by the coal ash spill [See Doc. 1].
II.
Standard of Review
A motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c)
is subject to the same standard of review as a motion brought under Federal Rule of Civil
Procedure 12(b)(6). Penny/Ohlmann/Nieman, Inc. v. Miami Valley Pension Corp., 399 F.3d
692, 697 (6th Cir. 2005). In reviewing either a motion to dismiss under Rule 12(b)(6) or a
motion for judgment on the pleadings under Rule 12(c), the Court “must construe the
complaint in a light most favorable to plaintiffs, accept all well-pled factual allegations as
true, and determine whether plaintiffs undoubtedly can prove no set of facts in support of
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those allegations that would entitle them relief.” Bishop v. Lucent Technologies, Inc., 520
F.3d 516, 519 (6th Cir. 2008) (citing Harbin-Bey v. Rutter, 420 F.3d 571, 575 (6th Cir.
2005)). Thus, the “complaint must contain either direct or inferential allegations respecting
all material elements to sustain a recovery under some viable legal theory.” Id. (quoting
Mezibov v. Allen, 411 F.3d 712, 716 (6th Cir. 2005)).
Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain a “short and
plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P.
8(a)(2). This pleading standard does not require “‘detailed factual allegations.’” Ashcroft
v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550
U.S. 544, 555 (2007)). However, “[a] pleading that offers ‘labels and conclusions’ or ‘a
formulaic recitation of the elements of a cause of action will not do’”; “[n]or does a
complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”
Id., 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 555, 557). Rather, “a complaint must
contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible
on its face.’” Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 570). “A claim has
facial plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id., 129 S.Ct.
at 1949 (quoting Twombly, 550 U.S. at 556). Moreover, “[a]lthough for the purposes of a
motion to dismiss [a court] must take all of the factual allegations in the complaint as true,
[it] ‘[is] not bound to accept as true a legal conclusion couched as a factual allegation.’”
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Iqbal, 129 S.Ct. at 1949-50 (quoting Twombly, 550 U.S. at 555) (internal quotation marks
omitted).
III.
Analysis
Only three of the forty-four plaintiffs in this action are the subject of TVA’s motion:
Eye Centers of Tennessee, LLC (“Eye Centers”), an eye care center, Browder Hardware Inc.
(“Browder”), a convenience store, and Sean D. Stephens (“Stephens”), a real estate agent.
TVA asserts that, according to the allegations in the complaint, as of December 22, 2008, the
date of the ash spill, plaintiffs did not own any real property that was physically damaged by
the spill. TVA asserts that plaintiffs only allege that the “business income” of their
respective businesses “diminished in value” as a result of the spill [Doc. 1, ¶¶ 37, 48, 64].
TVA argues that per the economic loss rule recognized in Robins Dry Dock & Repair Co.
v. Flint, 275 U.S. 303 (1927) and absent allegations of personal injury or physical damage
to property, plaintiffs cannot recover solely for alleged economic losses.
Plaintiffs disagree, arguing that TVA’s motion is premature and that their complaint
contains sufficient factual allegations that TVA’s conduct leading up to the coal ash spill
caused damage to plaintiffs’ businesses and property interests, all of which are located near
and around the area of the spill. Plaintiffs point to factual allegations contained in the
complaint and affidavits from plaintiffs or their principals and/or agents which allege that
since the ash spill, their businesses have not grown at projected rates and that their income,
business revenues, and profits have decreased as a result of the spill [See Doc. 21-1].
Plaintiffs also argue that the economic loss rule is inapplicable to their claims because under
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Tennessee law, that rule is limited to claims for products liability or claims involving the sale
of goods.
In United Textile Workers of Am., AFL-CIo v. Lear Siegler Seating Corp. (“Lear
Siegler”), 825 S.W.2d 83 (Tenn. Ct. App. 1990), perm. app. denied, the Tennessee Court of
Appeals traced the origins of the economic loss rule to Robins Dry Dock & Repair Co. v.
Flint, 275 U.S. 303 (1927), noting that in Robins, the “rule was expressed that liability is not
legally recognized for indirect economic damages.” Lear Siegler, 825 S.W.2d at 83-84. In
Robins, the defendant, a dry dock company, negligently damaged a ship’s propeller while the
ship was at dry dock, resulting in a delay in the ship being returned to service. Id., 275 U.S.
at 307-08. As a result of the defendant’s negligence, the plaintiff, who was the time charterer
of the ship, lost the use of the ship for the period of the delay and sued the defendant in tort
for economic losses. Id. The United States Supreme Court reversed the court of appeals,
which had allowed the plaintiff to recover, noting that “as a general rule . . . a tort to the
person or property of one man does not make the tort-feasor liable to another merely because
the injured person was under a contract with that other unknown to the doer of the wrong.
The law does not spread that far.” Id. at 309 (internal citation omitted); see also Lear
Siegler, 825 S.W.2d at 83-84.
The issue identified by the Tennessee Court of Appeals in Lear Siegler was “whether
the policy of the State of Tennessee should permit recovery for indirect economic loss absent
personal injury or property damage.” Id., 825 S.W.2d at 83. The plaintiffs, hourly workers
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at a facility in an industrial park, had brought the action for lost earnings against the
defendant, a factory located in the industrial park. Id. Inside the defendant’s factory, the
defendant had stacked metal racks next to a propane tank storage area. Id. The metal racks
eventually fell into the tank storage area, causing a tank to leak and resulting in the
evacuation of the industrial park, including the facility where the plaintiffs worked. Id. The
plaintiffs sued the defendant, arguing that the defendant was liable for lost wages they
sustained for the day the park was closed. Id. Notwithstanding the defendant’s negligence,
the trial court denied recovery based on the economic loss rule “because no physical harm
accompanied the economic loss.” Id. at 84. Citing Robins, the Tennessee Court of Appeals
affirmed that ruling, concluding “that this Court should follow the majority rule and disallow
recovery for purely economic loss absent physical injury or property damage.” Id. at 87.
As noted by plaintiffs, a group of cases from a federal court sitting in Tennessee
address the economic loss rule under Tennessee law. See Ham v. Swift Transp. Co., 694 F.
Supp. 2d 915 (W.D. Tenn. 2010); Loft v. Swift Transp. Co., 694 F. Supp. 2d 923 (W.D. Tenn.
2010); Pascarella v. Swift Transp. Co., 694 F. Supp. 2d 933 (W.D. Tenn. 2010); Broadnax
v. Swift Transp. Co., 694 F. Supp. 2d 947 (W.D. Tenn. 2010). The issue in Ham and the
companion cases was the application of the economic loss rule to negligence claims arising
from agreements for the provision of testing services for commercial drivers licenses
(“CDL”) by the defendant, who operated a trade school and a third-party CDL tester. Id.,
694 F. Supp. 2d at 917. The plaintiffs were students at the defendant’s trade school. Id.
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In Ham, the court noted the relative lack of guidance on the economic loss rule from
the Tennessee Supreme Court, along with the available case law from the Tennessee court
of appeals, including Lear Siegler. Id. at 921. Ham found that the court of appeals had
“implicitly restricted the economic loss doctrine to claims involving products liability or the
sale of goods, at least where the plaintiff can establish a sufficiently direct relationship
between the defendant’s negligent act and the plaintiff's economic loss[]” id. at 922 (citing
Trinity Indus., Inc. v. McKinnon Bridge Co., 77 S.W.3d 159, 173-74 (Tenn. Ct. App. 2001)),
and appeared to have restricted the economic loss rule to products only. Id. (citing McLean
v. Bourget’s Bike Works, Inc., No. M2003–01944–COA–R3–CV, 2005 WL 2493479, at *5
(Tenn. Ct. App. Oct. 7, 2005)). Ham also addressed a restriction of the economic loss rule
discussed in Ins. Co. of N. Am. v. Cease Elec. Inc. (“Cease”), 688 N.W.2d 462 (Wis. 2004),
a case from the Wisconsin Supreme Court, and noted that the Wisconsin court’s basis for the
restriction was similar to a basis articulated by the Tennessee Supreme Court when it limited
a plaintiff to UCC remedies for economic losses for a defective product, rather than
permitting damages under a negligence theory. Id. at 922-23. Ham concluded that it
believed “the Tennessee Supreme Court would rely on the fact that the economic loss
doctrine has its origins in the UCC to preclude application of the doctrine to suits not
involving UCC remedies, specifically those concerning the provision of services[]” id. at
923, and declined to apply the economic loss rule to the agreements at issue in that case.
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Plaintiffs assert that as found in Ham and its companion cases, federal district courts
applying Tennessee law have declined to extend the economic loss rule beyond cases
involving the sale of goods and, as determined in Corso Enters., Inc. v. Shop at Home
Network, Inc., No. 3:04-0260, 2005 WL 2346986, at *6-*7 & n.7 (M.D. Tenn. Sept. 6, 2005),
“governance by the UCC of the contract at issue is a prerequisite to the application of the
economic loss doctrine and resulting preclusion of recovery in tort.” Ham, 694 F. Supp. 2d
at 922 (citing Corso, 2005 WL 2346986, at *6-*7 & n.7).
This Court, however, does not find Tennessee courts to have limited the economic loss
rule to the extent described in Ham and the companion cases. While Ham noted the
application of the economic loss rule in Lear Siegler, which applied the rule to a tort situation
not involving a contract for goods or services or a products liability action, Ham did not offer
an explanation for why the Leah Siegler’s application of the economic loss rule to a tort
situation was in error or limited to the facts of that case. Id. Instead, Ham only noted the
dissent’s characterization of the majority opinion in Lear Siegler as a mechanical application
of a “dated” rule. Id. at 922. Furthermore, in almost identical language, the holdings of the
Ham court and the companion cases are based on what the Ham court called the“implicit”
and “apparent” restrictions in Trinity and McLean of the economic loss rule to products
liability claims or claims involving the sale of goods. Id.
Upon review, this Court finds neither Trinity nor McLean to abrogate Lear Siegler,
which applied the economic loss rule in a tort context which did not involve a contract for
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the sale of goods or services or a products liability action.1 Moreover, while Ham cited
Corso for the proposition that federal district courts applying Tennessee law have declined
to extend the economic loss rule beyond cases involving the sale of goods, the Court does
not find Corso to be so limiting. Ham, 694 F. Supp. 2d at 922. In Corso, the court held that
the economic loss rule of the UCC did not apply because the subject contract was not a UCC
contract. Id., 2005 WL 2346986, at *6-*7. Corso did not abrogate or implicate Lear Siegler
and did not hold that the economic loss rule was inapplicable outside the context of a UCC
contract.
The Court also notes Ham reference to Cease, the Wisconsin case, in discussing the
application of the economic loss doctrine. See Cease Elec. Inc., 688 N.W.2d 462. Ham cited
a statement from Cease that the “genesis of the economic loss doctrine lies in products
liability cases[]” Ham, 694 F. Supp. 2d at 922 (quoting Cease, 688 N.W.2d at 467), and
described Cease as stating that “[s]ince the UCC is inapplicable to service contracts . . . it
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In Trinity, the Tennessee Court of Appeals noted its agreement with the “principle that a
breach of a contract for the sale of goods resulting in consequential damages is governed by the
U.C.C. despite the fact that the pleadings allege the seller negligently performed the contract.” Id.,
77 S.W.3d at 173. Trinity does not hold, implicitly or otherwise, that the economic loss rule is
restricted to only claims involving products liability or claims arising out of the sale of goods.
In McLean, the plaintiff sued a motorcycle manufacturer for “economic injuries” under a
negligent design products liability theory, without asserting any personal injury or damage to any
other property. Id., 2005 WL 2493479, at *4-*5. The McLean court affirmed the trial court’s
dismissal of the plaintiff’s claim, noting that the economic loss rule “comes into play when the
purchaser of a product sustains economic loss without personal injury or damage to property other
than the product itself. In that circumstance, the purchaser must seek a remedy in contract, not tort.”
Id. at *5. The McLean court did not abrogate Lear Siegler and did not hold that the economic loss
rule was inapplicable in a tort context not involving a products liability claim.
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would not apply the economic loss doctrine to suits seeking recovery for negligently
provided services.” Ham, 694 F. Supp. 2d at 922 (citing Cease, 688 N.W.2d at 470, 472.
According to Ham:
This rationale for limiting the economic loss doctrine echoes that
expressed by the Tennessee Supreme Court in deciding to limit a
plaintiff suing for a defective product who sustained only economic
losses to remedies under the UCC instead of allowing the plaintiff to
proceed under a theory of negligence. [Ritter v. Custom Chemicides,
Inc., 912 S.W.2d 128, 133 & n.8 (Tenn. 1995)]. If the existence of
UCC remedies provides the justification for not allowing the plaintiff
to sue in tort, the absence of UCC remedies should counsel in favor of
allowing tort recovery. Thus, the Court believes that, like the
Wisconsin Supreme Court, the Tennessee Supreme Court would rely
on the fact that the economic loss doctrine has its origins in the UCC to
preclude application of the doctrine to suits not involving UCC
remedies, specifically those concerning the provision of services.
Id. at 922-23.
As pointed out by TVA, a recent decision from a federal district court applying
Wisconsin law noted the difference between the economic loss rule in the context of a case
involving contracts and a case in which no contract or privity between the parties is
involved—the situation presented in Lear Siegler and in this case.
See Custom
Underground, Inc. v. Mi-Tech Servs., Inc., 2011 WL 5008343 (E.D. Wis. Oct. 20, 2011).
Custom Underground involved a claim for professional negligence in which the plaintiff, a
contractor, alleged that it sustained damages in reliance on plans and specifications prepared
by the defendant, a designer. Id., 2011 WL 5008343, at *1. Importantly, the Custom
Underground court noted that there was no services agreement or contractual privity between
the plaintiff and the designer, id. at *3-*4, and that the sole alleged losses were economic.
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Id. at *4. The Custom Underground court framed the plaintiff’s argument as being that “this
is a case involving the provision of services and, as the Wisconsin Supreme Court has held
in [Cease], the economic loss doctrine is inapplicable to claims for the negligent provision
of services.” Id., 2011 WL 5008343, at *4. However, the court stated, “it would appear that
the plaintiff’s argument . . . conflates the economic loss doctrine’s applicability in cases
where contractual privity exists between the parties with Wisconsin’s principles regarding
recovery of economic losses in tort where no contractual privity exists[.]” Id. The court
stated that the decision in Cease “did not address situations, such as here, in which no
contractual privity exists between the parties[,]” concluding that it was “ambiguous” as to
what Wisconsin courts would do in a situation that did not involve any contractual privity
between the parties and that it would “adhere to the clear dictates of Wisconsin law . . . that
recovery of economic loss in tort is only available when the economic loss is combined with
damage to the plaintiff’s person or property.” Id.
Given the foregoing analysis of Lear Siegler and Ham and the cases discussed therein,
the Court respectfully disagrees with Ham and the companion cases that the Tennessee
Supreme Court would not be likely to extend the economic loss rule to the tort situation
presented in this case. As noted in Acuity v. McGhee Eng’g, 297 S.W.3d 718, 734 (Tenn. Ct.
App. 2008), perm. app. denied, “[t]he economic loss doctrine provides that, absent privity,
one may not recover in negligence where there is no injury to person or property.” Id. at 734
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(citing Lear Siegler, 825 S.W.2d at 87).2 Furthermore, because Lear Siegler is a published
decision by the Tennessee Court of Appeals that has not been overruled or modified by a
subsequent decision of the Tennessee Supreme Court, it is controlling authority on this Court.
See Meadows v. State, 849 S.W.2d 748, 752 (Tenn. 1993) (stating that in Tennessee, “the
published opinions of the intermediate appellate courts are opinions which have precedential
value and may be relied upon by the bench and bar of this state as representing the present
state of the law with the same confidence and reliability as the published opinions of [the
Tennessee Supreme Court], so long as either are not overruled or modified by subsequent
decisions”); Allen v. State, No. M2003-00905-COA-R3-CV, 2004 WL 1745357, at *2 (Tenn.
Ct. App. Aug. 3, 2004) (noting that because the Tennessee Supreme Court denied permission
to appeal and directed the publication of the court of appeals’ opinion, the decision of the
appellate court was controlling authority).
IV.
Conclusion
For the reasons stated above, TVA’s Motion for Judgment on the Pleadings as to
Three Plaintiffs for Failure to State a Claim Upon Which Relief Can Be Granted [Doc. 13]
will be GRANTED and the claims of plaintiffs Eye Centers of Tennessee, LLC, Browder
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Acuity involved a services contract and held that the plaintiff’s claim for economic loss
could go forward because “Tennessee law recognizes an exception to the economic loss doctrine:
despite the absence of privity, a plaintiff may maintain an action for purely economic loss based
upon negligent supervision or negligent misrepresentation.” Id., 297 S.W.3d at 734 (citing John
Martin Co., Inc. v. Morse/Diesel, Inc., 819 S.W.2d 428, 435 (Tenn. 1991)). See also Tan v. Wilbur
Smith Assocs., Inc., No. 2:09-CV-25, 2011 WL 3421320 (E.D. Tenn. Aug. 4, 2011).
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Hardware Inc., and Sean D. Stephens will be DISMISSED, pursuant to Rule 12(c), for
failure to state a claim upon which relief may be granted.
ORDER ACCORDINGLY.
s/ Thomas A. Varlan
UNITED STATES DISTRICT JUDGE
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