United States District Court, E.D. Kentucky
MEMORANDUM OPINION AND ORDER
R. Wilhoit, Jr United State District Judge.
matter is before the Court upon Plaintiffs Motion to Dismiss
Counts I and II of Defendant's Counterclaim [Docket No.
25]. The matter has been fully briefed by the parties [Docket
Nos. 25-1, 28 and 29]. For the reasons set forth herein, the
Court finds that Counts I and II of the Counterclaim fail to
state a claim upon which relief can be granted.
case arises from a contract between the parties wherein
Plaintiff Vernon Stapleton agreed to lease certain
construction equipment to Defendant Hartman & Company,
Inc. for use on a utility project. Ultimately, Plaintiff
filed this civil action against Defendant alleging breach of
contract, loss of rental income, unjust enrichment and
property damage, the Complaint was originally filed in
Greenup Circuit Court and then removed to this Court pursuant
to 28 U.S.C. §§ 1332(a), 1441 and 1446 [Docket No.
1]. Subsequently, Defendant filed a Counterclaim against
Plaintiff, alleging fraudulent misrepresentation (Count I),
negligent representation (Count II) and breach of contract
(Count HI) [Docket No. 6]. Plaintiff seeks dismissal of
Counts I and II of the Counterclaim pursuant to
scrutinizing a complaint under Rule 12(b)(6), the Court is
required to "accept all well-pleaded factual allegations
of the complaint as true and construe the complaint in the
light most favorable to the plaintiff." Dubay v.
Wells, 506 F.3d 422, 426 (6th Cir.2007). A complaint
need not contain "detailed factual allegations".
However, it must allege more than "a formulaic
recitation of the elements of a cause of action."
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127
S.Ct. 1955, 167 L.Ed.2d 929 (2007). A complaint will
withstand a motion to dismiss if it "contain[s]
sufficient factual matter, accepted as true, to state a claim
to relief that is plausible on its face." Ashcroft
v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173
L.Ed.2d 868 (2009). A complaint has "facial
plausibility" if the plaintiff pleads factual content
that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged."
Hensley Mfg. v. ProPride, Inc., 579 F.3d 603, 609
(6th Cir.2009) (quoting Iqbal, 129 S.Ct. at 1949).
argues that the claims alleged in Counts I and II of
Defendant's Counterclaim are barred by the economic loss
doctrine and, therefore, must be dismissed. The Court agrees.
economic loss doctrine "prevents the commercial
purchaser of a product from suing in tort to recover for
economic losses arising from the malfunction of the product
itself, recognizing that such damages must be recovered, if
at all, pursuant to contract law." Giddings &
Lewis, Inc. v. Indus. Risk Ins., 348 S.W.3d 729, 733
(Ky. 2011). Economic loss encompasses "both loss in the
value of the product caused by a defect in the product
(direct economic loss) and consequential loss flowing from
the defect, such as lost profits (consequential economic
loss)." Highland Stud Int'l v. Baffert,
2002 WL 34403141 at *3 (E.D. Ky. May 16, 2002).
rule "maintains the historical distinction between tort
and contract law, " "protects parties' freedom
to allocate economic risk by contract" and
"encourages the party best situated to assess the risk
of economic loss, usually the purchaser, to assume, allocate,
or insure against that risk." Mt. Lebanon Pers. Care
Home v. Hoover Universal, Inc., 276 F.3d 845, 848 (6th
"rule recognizes that economic losses, in essence,
deprive the purchaser of the benefit of his bargain and that
such losses are best addressed by the parties' contract
and relevant provisions of Article 2 of the Uniform
Commercial Code." Giddings, 348 S.W.3d at 738.
policies support applying the economic loss doctrine to
commercial transactions: (1) it maintains the historical
distinction between tort and contract law; (2) it protects
parties' freedom to allocate economic risk by contract;
and (3) it encourages the party best situated to assess the
risk of economic loss, usually the purchaser, to assume,
allocate, or insure against that risk." Mt. Lebanon
Pers. Care Home, Inc. v. Hoover Universal, Inc., 276
F.3d 845, 848 (6th Cir. 2002)).
Giddings & Lewis, the Kentucky Supreme Court
held that "the economic loss rule applies in Kentucky to
negligence and strict liability claims arising from the
malfunction of commercial products" because
"economic losses . . . deprive the purchaser of the
benefit of his bargain and that such losses are best
addressed by the parties' contract and relevant
provisions of Article 2 in the Uniform Commercial Code."
348 S.W.3d 729, 736, 739-40 (Ky. 2011). The court also
applied the rule to negligent misrepresentation claims,
reasoning that "when the alleged [negligent]
misrepresentations relate solely to the character, nature and
performance of the product itself, the claim is essentially
an attempt to make an end-run around the negotiated warranty
in the parties' contract and the economic loss rule
should apply just as it does to negligence and strict
liability theories." Id. at 744.
Counterclaim is based upon statements allegedly made by
Plaintiff concerning the fitness of the equipment being
leased for the Defendant's project. Defendant alleges
that Plaintiff misrepresented, negligently as well as
fraudulently, the equipment. Defendant seeks purely economic
losses such as repair expenses, losses of productivity and
insufficiencies, and costs to secure replacement equipment.
The Counterclaim does not claim damages for any injuries to
persons or damage to other property. Further, Defendant's
misrepresentation claims overlap entirely with its claim for
breach of contract. Indeed, the basis for the breach of
contract claim is identical to the basis for the
misrepresentation claims; the same alleged misrepresentations
that form the basis of the misrepresentation claims also
constitute the alleged ...