-1-

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF MICHIGAN

SOUTHERN DIVISION 

JOSEPH MURPHY, ET AL.,

No. 08-15170

Plaintiffs,

 Honorable John Feikens

v. United States District Judge

Honorable R. Steven Whalen

THE PROCTOR & GAMBLE United States Magistrate Judge

COMPANY,

Defendant.

____________________________/

REPORT AND RECOMMENDATION

Before the Court is Defendant’s Motion to Dismiss Counts II and III of the First

Amended Class Action Complaint [Docket #18], which has been referred for a Report and

Recommendation pursuant to 28 U.S.C. §636(b)(1)(B). Because these claims are barred

by the economic loss doctrine, I recommend that the Defendant’s motion be GRANTED,

and that Count II (common law fraud) and Count III (silent fraud) of the Plaintiffs’

complaint be DISMISSED.

I. BACKGROUND

On its face, this case is about razor blades. Proctor & Gamble (“P&G”)

manufactures and markets a wide range of consumer good, including the Gillette brand

razors and razor blades. P&G produces two straight razor blade handles marketed under

the name “Gillette Fusion.” Both utilize five razor blades in one cartridge. One handle,

the “Fusion Power Handle,” houses a battery that causes the attached blade cartridge to

vibrate; the other, the “Fusion Handle,” is not battery operated.

P&G also produces and markets two different blades to be used with the Fusion

2:08-cv-15170-RSW Doc # 24 Filed 12/16/09 Pg 1 of 9 Pg ID 622
-2-

Handle systems. One is designated the Fusion Power cartridge, and the other is simply

called a Fusion cartridge. The Fusion Power cartridges cost about $1.00 more for a

package of four cartridges. The Plaintiffs allege that the packaging of the Fusion Power

cartridges lead consumers to believe that they are related to and must be used with the

Fusion Power handles, but that in fact, there is no difference between the blades. The

Plaintiffs contend that this deception “exemplif[ies] the corporate greed and moral decay

that seems to have taken hold in the USA Corporate World and which is now the subject

matter of attack by the American people.” Answer to Defendant’s Motion to Dismiss, p.6.

Count I of the First Amended Complaint alleges violation of state consumer

protection statutes, and Count IV seeks injunctive relief. Those counts are not at issue in

this motion. Counts II and III allege state law claims of common law fraud and silent

fraud, respectively. Defendant seeks dismissal of those claims under Fed.R.Civ.P.

12(b)(6).

II. STANDARD OF REVIEW

Fed.R.Civ.P. 12(b)(6) provides for dismissal of a complaint “for failure of the

pleading to state a claim upon which relief can be granted.” Rule 12(b) also provides that

if, on consideration of a motion under paragraph (6), “matters outside the pleadings are

presented to and not excluded by the court, the motion shall be treated as one for summary

judgment and disposed of as provided in Rule 56 (summary judgment).” In assessing a

Rule 12(b)(6) motion, the court accepts the plaintiff’s factual allegations as true, and asks

whether, as a matter of law, the plaintiff is entitled to legal relief. Rippy v. Hattaway, 270

F.3d 416, 419 (6th Cir. 2001). 

In two recent cases, the United States Supreme Court altered the standard for

determining whether a complaint is subject to dismissal under Fed.R.Civ.P. 12(b)(6). In In

2:08-cv-15170-RSW Doc # 24 Filed 12/16/09 Pg 2 of 9 Pg ID 623
1

 Rule 8(a)(2) provides that a pleading must contain a “short and plain statement of

the claim showing that the pleader is entitled to relief.”

2 Twombley was an antitrust case. Iqbal was a prisoner civil rights case. In any

event, it is clear that the Iqbal standard is applicable to all 12(b)(6) motions.

-3-

Bell Atlantic Corp. V. Twombley, 550 U.S 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007),

the Court, construing the requirements of Fed.R.Civ.P. 8(a)(2),1

 held that although a

complaint need not contain detailed factual allegations, its “[f]actual allegations must be

enough to raise a right to relief above the speculative level...on the assumption that all the

allegations in the complaint are true.” Id., 127 S.Ct. at 1964-65 (internal citations and

quotation marks omitted). Further, “a plaintiff’s obligation to provide the grounds of his

entitlement to relief requires more than labels and conclusions, and a formulaic recitation

of the elements of a cause of action will not do.” Id. (Internal citations and quotation

marks omitted). See also Association of Cleveland Fire Fighters v. City of Cleveland, Ohio

502 F.3d 545, 548 (6th Cir. 2007). Stated differently, a complaint must “state a claim to

relief that is plausible on its face.” Twombley, at 1974.

In Ashcroft v. Iqbal, U.S. , 129 S.Ct. 1937, L.Ed.2d (2009), the Court

explained and expanded on what it termed the “two-pronged approach” of Twombley.

2

First, it must be determined whether a complaint contains factual allegations, as opposed

to legal conclusions. “Threadbare recitals of the elements of a cause of action, supported

by mere conclusory statements, do not suffice.” Id., 129 S.Ct. At 1949, citing Twombley,

550 U.S. at 555. Second, the facts that are pled must show a “plausible” claim for relief,

which the Court described as follows:

“Determining whether a complaint states a plausible claim for relief will, as

the Court of Appeals observed, be a context-specific task that requires the

reviewing court to draw on its judicial experience and common sense. But

where the well-pleaded facts do not permit the court to infer more than the

mere possibility of misconduct, the complaint has alleged–but it has not

2:08-cv-15170-RSW Doc # 24 Filed 12/16/09 Pg 3 of 9 Pg ID 624
3

 The underlying rationale of the economic loss doctrine is applicable to claims under the

Consumer Protection Act. See Huron Tool and Engineering Company v. Precision

-4-

‘shown[n]”–‘that the pleader is entitled to relief.’” 129 S.Ct. at 1950(Internal

citations omitted).

III. DISCUSSION

The Defendant raises a number of arguments in support of dismissal, but one is

dispositive as a matter of law, and that is the economic loss doctrine.

In Neibarger v. Universal Cooperatives, Inc., 439 Mich. 512, 486 N.W.2d 612, 615

(1992), the Michigan Supreme Court explained the economic loss doctrine as follows:

“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.” (Ci v tations

omitted).

In Neibarger, the plaintiffs, purchasers of allegedly defective goods, brought

negligence and strict liability claims in addition to contract claims under the Uniform

Commercial Code (“UCC”). Applying the economic loss doctrine, the Supreme Court

found that the plaintiffs claimed purely economic losses arising out of the quality of the

products, and that those claims were already addressed by the UCC. Therefore, the Court

held that the plaintiffs could not pursue their independent tort claims, remarking that “[a]

contrary holding would not only serve to blur the distinction between tort and contract, but

would undermine the purpose of the Legislature in adopting the UCC.” Id., 439 Mich. at

528. Put differently, “Article 2 would be rendered meaningless and ‘contract law would

drown in a sea of tort.’” Id. (quoting East River Steamship Corp. v. Transamerica Delaval

Inc., 476 U.S. 858, 866, 106 S.Ct. 2295, 90 L.Ed.2d 865 (1986)).3

2:08-cv-15170-RSW Doc # 24 Filed 12/16/09 Pg 4 of 9 Pg ID 625
Consulting Services, Inc., 209 Mich.App. 365, 374, 532 N.W.2d 541 (1995) (“[a]lthough

the Supreme Court's discussion [in Niebarger ] was linked closely to the UCC context of

the case, the doctrine is not limited to the UCC”); Williams v. Scottrade, Inc., 2006 WL

2077588, *6 (E.D.Mich. 2006)(Duggan, J.) (applying economic loss doctrine in a

Michigan Consumer Protection Act case); Werwinski v. Ford Motor Co., 286 F.3d 661

(3rd Cir. 2002)(the economic loss doctrine precludes fraud claim in a state consumer

protection action).

-5-

Plaintiffs argue first that the economic loss doctrine does not apply to consumer

transactions where there is no direct privity between the consumer and the defendant

manufacturer. That theory has been rejected by both Michigan and federal courts. In

Sherman v. Sea Ray Boats, Inc., 251 Mich.App. 41, 649 N.W.2d 783, 788 (2002), the

court, analyzing Neibarger in the context of antecedent case law, found the “argument that

the economic loss doctrine applies only to ‘commercial’ or ‘non-consumer’ transactions is

without merit....” Although Sherman declined to address the privity of contract issue

(because it was not raised), it did cite with approval Citizens Ins. Co. v. Osmose Wood

Preserving, Inc., 231 Mich.App. 40, 585 N.W.2d 314 (1998), noting that the court in that

case “held that the fact that the owner was not in a position to negotiate the sale or foresee

the injury could not avoid the economic loss doctrine, even in the absence of privity of

contract.” Sherman, 251 Mich.App. at 54.

In Farm Bureau Insurance v. Deere Company, 2009 WL 104139, *2 (W.D. Mich.

2009), Judge Quist, citing Sherman, held that neither privity nor the commercial nature of

a transaction were required for application of the economic loss doctrine:

“Farm Bureau argues that the economic loss doctrine has been applied in the

absence of privity only where the parties were commercial entities and

privity was irrelevant to the availability of a remedy for breach of warranty.

It attempts to distinguish the cases in which courts have applied the doctrine

in the absence of privity by noting, “[i]n those cases ..., the defendant was a

supplier of a product, the plaintiff was the consumer of that product, and the

economic losses emanated from the failure of the product to meet the

expectations of the ... consumer.” But, that is the case here. Furthermore,

Sherman makes clear that whether the purchaser is a commercial entity is

2:08-cv-15170-RSW Doc # 24 Filed 12/16/09 Pg 5 of 9 Pg ID 626
-6-

irrelevant. The critical considerations are the nature of the harm, the source

of the implicated duty, and the policy interests underlying tort and contract

law. These unequivocally warrant the application of the economic loss

doctrine in this case.”

By contrast, in Auto-Owners v. Chrysler, 129 Mich.App. 38, 341 N.W.2d 223

(1983), a 2-1 majority of a Court of Appeals panel found that the application of the

economic loss doctrine in a consumer case required privity of contract. The dissent opined

that where the UCC provides for recovery of economic losses, the economic loss doctrine

precludes a tort action, regardless of whether the plaintiff is a consumer or a commercial

entity. In Sullivan Industries, Inc. v. Double Seal Glass Co., Inc., 192 Mich.App. 333, 480

N.W.2d 623 (1992), the Court of Appeals adopted the reasoning of the Auto-Owners

dissent in the context of a commercial transaction. Sullivan Industries cited Great

American Insurance Co. v. Paty’s, Inc., 154 Mich.App. 634, 641, 397 N.W.2d 853 (1986),

where the court observed that “the dissent in Auto-Owners makes a strong argument for

the proposition that a contractual relationship is unnecessary to invoke the [economic loss

doctrine].”

In a recent decision, the Michigan Supreme Court put to rest the question of

whether lack of privity in a consumer transaction precludes application of the economic

loss doctrine. See Davis v. Forest River, Inc., Mich. , 774 N.W.2d 327 (2009). Davis

involved the consumer sale of a recreational vehicle. There was no privity between the

purchaser plaintiff and the defendant manufacturer. In the lower court decision, Davis v.

Forest River, Inc. 278 Mich.App. 76, 91, 748 N.W.2d 887 (2008), the Court of Appeals

declined to apply the UCC and the economic loss doctrine based on lack of privity, stating:

“[T]he UCC and the economic-loss doctrine apply to situations where the

parties have some kind of contractual relationship with each other. No such

contractual relationship existed here. The UCC and the economic-loss

doctrine therefore simply do not apply.”

2:08-cv-15170-RSW Doc # 24 Filed 12/16/09 Pg 6 of 9 Pg ID 627
4

 In Pack v. Damon Corp. 434 F.3d 810, 819 -820 (6th Cir. 2006), the Sixth Circuit

reviewed the development of Michigan case law from Auto-Owners to Sullivan, and

concluded “that Michigan has abandoned the privity requirement for implied-warranty

claims.” The Supreme Court’s decision in Davis validates the Sixth Circuit’s conclusion

in Pack. In the evolution of consumer law, the concept of privity is becoming an

anachronism.

-7-

In its order granting leave to appeal (Davis v. Forest River, Inc., 483 Mich. 985,

764 N.W.2d 278 (2009)), the Supreme Court directed the parties to address a number of

issues, including “whether the UCC requires privity to revoke acceptance of [a] purchase

contract,” and “whether the economic loss doctrine and the UCC...apply to the plaintiff

consumer’s claims for breach of warranty.” In its final order, found at 774 N.W.2d at 328,

the Supreme Court vacated the judgment of the Court of Appeals and held that “the

Uniform Commercial Code applies to this breach of warranty action, as it involves the sale

of goods.” Consequently, contrary to the Court of Appeals decision that the Supreme

court vacated, the economic loss doctrine also applied, notwithstanding lack of privity

between the consumer and the manufacturer. Davis thus settles any conflict between Auto

Owners, Farm Bureau Insurance and Sea Ray Boats.

4

The next question is whether the intentional torts alleged in Count II (common law

fraud) and Count III (silent fraud) of the complaint are exceptions to the economic loss

doctrine. In Huron Tool and Engineering Company v. Precision Consulting Services, Inc.,

209 Mich.App. 365, 532 N.W.2d 541 (1995), the court held that a claim of fraud in the

inducement could survive independently of breach of contract or breach of warranty

claims, so long as the fraud claim was extraneous to the contractual or warranty dispute.

Id., 209 Mich.App. at 372-75. The court explained that “a claim of fraud in the

inducement, by definition, redresses misrepresentations that induce the buyer to enter into

a contract but that do not in themselves constitute contract or warranty terms subsequently

2:08-cv-15170-RSW Doc # 24 Filed 12/16/09 Pg 7 of 9 Pg ID 628
5

 An example of a fraud claim that could be maintained independently of the underlying

UCC, warranty or consumer protection action would be as follows. The manufacturer

advertises that every purchaser of its more expensive razor blade will be entered in a

drawing to win a new car. In fact, there is no drawing and there is no new car. The fraud

consists of false representations that have nothing to do with the quality or character of

the product, and are thus extrinsic to the underlying warranty, contract or consumer

protection claims.

-8-

breached by the seller.” Id. at 374 (emphasis added). However, “where the only

misrepresentation by the dishonest party concerns the quality or character of the goods

sold,” id. at 373, the economic loss doctrine would preclude a fraud claim. See also

Snyder v. Boston Whaler, Inc., 892 F.Supp. 955, 961 (W.D. Mich. 1994) (applying

economic loss doctrine where the plaintiff’s fraud claims did not arise independently of the

contract claims).

In this case, the Plaintiffs’ fraud claims are premised on the theory that the more

expensive razor blade is represented to be of superior or different quality than the lesser

expensive blade, when in fact they are identical. The alleged fraud is inextricably related

to the nature of the product and to the underlying consumer protection claims. The only

damages are economic. Therefore, the fraud claims must be dismissed under the economic

loss doctrine.5

IV. CONCLUSION

I therefore recommend that Defendant’s Motion to Dismiss Counts II and III

[Docket #18] be GRANTED, and that Count II (common law fraud) and Count III (silent

fraud) of the Plaintiffs’ complaint be DISMISSED.

Any objections to this Report and Recommendation must be filed within fourteen

(14) days of service of a copy hereof (including weekends and intervening holidays) as

provided for in 28 U.S.C. §636(b)(1) and E.D. Mich. LR 72.1(d)(2). Failure to file

specific objections constitutes a waiver of any further right of appeal. Thomas v. Arn, 474

2:08-cv-15170-RSW Doc # 24 Filed 12/16/09 Pg 8 of 9 Pg ID 629
-9-

U.S. 140, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985); Howard v. Secretary of HHS, 932 F.2d

505 (6th Cir. 1991); United States v. Walters, 638 F.2d 947 (6th Cir. 1981). Filing of

objections which raise some issues but fail to raise others with specificity will not preserve

all the objections a party might have to this Report and Recommendation. Willis v.

Sullivan, 931 F.2d 390, 401 (6th Cir. 1991); Smith v. Detroit Fed’n of Teachers Local 231,

829 F.2d 1370, 1373 (6th Cir. 1987). Pursuant to E.D. Mich. LR 72.1(d)(2), a copy of any

objections is to be served upon this Magistrate Judge.

Within fourteen (14) days of service of any objecting party’s timely filed objections

(including weekends and intervening holidays), the opposing party may file a response. 

The response shall be not more than twenty (20) pages in length unless by motion and

order such page limit is extended by the 

court. The response shall address specifically, and in the same order raised, each issue

contained within the objections.

s/R. Steven Whalen 

R. STEVEN WHALEN

UNITED STATES MAGISTRATE JUDGE

Dated: December 16, 2009

CERTIFICATE OF SERVICE

The undersigned certifies that a copy of the foregoing order was served on the attorneys

and/or parties of record by electronic means or U.S. Mail on December 16, 2009.

s/Susan Jefferson 

Case Manager

2:08-cv-15170-RSW Doc # 24 Filed 12/16/09 Pg 9 of 9 Pg ID 630