Opinion ID: 745376
Heading Depth: 2
Heading Rank: 1

Heading: Cooper's Claims Against Carbide

Text: 7 Cooper admits that it never dealt directly with Carbide and that it was never a party to any contract with Carbide. Cooper, therefore, is claiming that it was a third-party beneficiary to the contract between PFI and Carbide. 2 A person cannot assert contractual rights as a third-party beneficiary to a contract unless that person was an intended beneficiary of the contract. See TRINOVA Corp. v. Pilkington Bros., 70 Ohio St.3d 271, 638 N.E.2d 572, 576-77 (1994) (quoting Restatement (Second) of Contracts § 302 (1981)); Mercado v. Mitchell, 83 Wis.2d 17, 264 N.W.2d 532, 538 (1978) (stating that third party must show that the contract was entered into by the parties directly and primarily for his benefit). Under Ohio law, there must be evidence, on the part of the promisee, that he intended to directly benefit a third party, and not simply that some incidental benefit was conferred on an unrelated party by the promisee's actions under the contract. There must be evidence that the promisee assumed a duty to the third party. TRINOVA Corp., 638 N.E.2d at 577. 8 The PFI-Carbide contract was clearly not entered into for the benefit of Cooper. Cooper's arguments to the contrary all boil down to an assertion that Carbide knew that PFI was selling paint containing VYES to Cooper or companies like Cooper. Yet the fact that a seller knows that an intermediate buyer of its products will immediately resell the product is not sufficient to make the ultimate buyer an intended beneficiary of the original sales contract. Commonwealth Propane Co. v. Petrosol Int'l, Inc., 818 F.2d 522, 531-32 (6th Cir.1987) (Ohio law). Contract law significantly circumscribes the ability of remote parties to enforce others' promises for good reasons, one of which is to prevent the nearly limitless liability that Cooper's theory would impose. There is no evidence in this case that Carbide and PFI entered into a contract with the intent to benefit Cooper or that the parties intended to create third-party-beneficiary rights. Cooper is, at best, a mere incidental beneficiary. We therefore agree with the district court that Cooper cannot maintain its claims against Carbide for breach of contract and warranty. See id.; St. Paul Fire & Marine Ins. Co. v. R.V. World, 62 Ohio App.3d 535, 577 N.E.2d 72, 75 (1989); Northridge Co. v. W.R. Grace & Co., 162 Wis.2d 918, 471 N.W.2d 179, 187 n. 15 (1991).
9 The district court held that Cooper's tort claims were barred by the economic loss doctrine. In Wisconsin, a commercial purchaser of a product cannot recover solely economic losses from the manufacturer under negligence or strict liability theories. Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis.2d 910, 437 N.W.2d 213, 217-18 (1989). Cooper urges that economic loss is recoverable in tort when there is no privity between the parties, as in the case of Carbide and Cooper. Applying Wisconsin law, however, we have already stated otherwise: Privity of contract is not an element of the economic loss doctrine. Miller v. United States Steel Corp., 902 F.2d 573, 575 (7th Cir.1990). We considered the issue again in Midwest Knitting Mills, Inc. v. United States, 950 F.2d 1295 (7th Cir.1991), repeating that there is now substantial evidence that Wisconsin would decline in all circumstances to allow a negligence suit for the recovery of only economic damages, even when there is no contractual relationship between the parties. Id. at 1300. 10 Cooper insists that we have misread Wisconsin law; it urges that the Supreme Court of Wisconsin would hold that privity is an essential element of the economic loss doctrine. It notes that there was privity in Sunnyslope and that the Court of Appeals of Wisconsin has indicated that it does not believe that we have predicted correctly the course that the state's highest court will take when presented squarely with the issue. See Hap's Aerial Enters., Inc. v. General Aviation Corp., 173 Wis.2d 459, 496 N.W.2d 680, 682 & n. 4 (Ct.App.1992); see also Tony Spychalla Farms, Inc. v. Hopkins Agric. Chem. Co.,151 Wis.2d 431, 444 N.W.2d 743, 748 (Ct.App.1989). After Hap's Aerial, then-Chief Judge Evans, now a member of this court, revisited the privity issue and reaffirmed Miller's assessment of Wisconsin law. See Midwest Helicopters Airways, Inc. v. Sikorsky Aircraft, 849 F.Supp. 666 (E.D.Wis.), aff'd, 42 F.3d 1391 (7th Cir.1994) (unpublished). In a thoughtful discussion, Judge Evans concluded that the Hap's Aerial court was primarily concerned with cases involving negligent services or acts, not products, and that in any event the Supreme Court of Wisconsin had employed economic-loss-doctrine analysis in Northridge Co. v. W.R. Grace & Co., 162 Wis.2d 918, 471 N.W.2d 179 (1991), even though the parties there were not in privity, see id. at 187 n. 15. By all accounts, our case law has remained unchanged and is clear that privity is not a prerequisite to the application of the economic loss doctrine in Wisconsin; and there has been no intervening circumstance to cause us to reconsider Miller and Midwest Knitting. Those cases therefore bind this court. 3 11 Cooper next points out that its complaint seeks to recover, among other things, damages for diminished goodwill and business reputation. Cooper then cites to a snippet in Miller where we juxtaposed commercial loss with damage to person, property, or reputation. 902 F.2d at 574. Relying on this portion of Miller, Cooper claims that damages to goodwill and business reputation are recoverable in tort. Cooper, though, misses the point of the economic loss doctrine. In Miller we distinguished economic loss from an injury to the plaintiff's person or property (property other than the product itself), the type of injury on which a products liability suit usually is founded. Id. Regardless of characterization, Cooper's alleged damage is typical economic loss. Economic losses can be direct or consequential. Northridge Co., 471 N.W.2d at 181-82. Direct economic loss includes the cost of repair or replacement, id., which is the main component of Cooper's alleged damages. Consequential economic loss includes all indirect loss, such as lost profits, resulting from the product's inability to perform. Id. at 182. Cooper's alleged damages to its business were caused because the product's quality was inferior; its repair costs, replacement costs and lost profits resulting therefrom are the epitome of commercial losses. The fact that Cooper characterizes some of its damages as loss of goodwill and business reputation does not transform the nature of its injury. Id. at 184. When the loss to goodwill results from the failure of a product to perform as expected, and not from injury to another person or other property, those losses are commercial and are not recoverable in tort. See Krider Pharmacy & Gifts, Inc. v. Medi-Care Data Sys., Inc., 791 F.Supp. 221, 226 (E.D.Wis.1992). Any other holding would swallow the economic loss doctrine; parties would be able to end-run the law of contract and the Uniform Commercial Code by the simple expedient of pleading that their commercial losses--repair costs, lost profits and the like--included damage to business goodwill. Because Cooper has no claim for personal injury or physical harm to property other than the defective product itself, its remedy lies in a breach of warranty claim, not in a claim in tort. Northridge Co., 471 N.W.2d at 182; see Wis. Stat. § 402.715; Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis.2d 910, 437 N.W.2d 213, 217 (1989) (Contract law, the law of warranty and the Uniform Commercial Code are designed to allow the parties to allocate the risk of product failure.). 12 Cooper's final argument to escape the confines of commercial law is to assert that its misrepresentation claims, though arising in tort, are an exception to the economic loss doctrine. This court, however, has already predicted that Wisconsin would not allow a negligence or strict liability misrepresentation claim seeking to recover economic damages. See Badger Pharmacal, Inc. v. Colgate-Palmolive Co., 1 F.3d 621, 628 (7th Cir.1993). We perceive no basis for treating Cooper's intentional misrepresentation claim any differently. Cooper's misrepresentation claims assert that Carbide misrepresented the properties (or failed to speak when it had a duty to do so) of VYES to PFI, which in turn was unable to keep Cooper abreast of potential problems with Weathercote-T. Misrepresentations such as these, that ultimately concern the quality of the product sold, are properly remedied through claims for breach of warranty. 4 Cooper could have and maybe did (its claims against PFI are still pending) extract an express warranty from PFI to remedy any misrepresentations related to product quality. A perfectly workable commercial chain therefore exists for recovery: Cooper sues PFI using commercial law for claims relating to the sale of Weathercote-T, and PFI sues Carbide using the same set of principles for claims relating to the sale of VYES. The insight behind the [economic loss] doctrine is that commercial disputes ought to be resolved according to the principles of commercial law rather than according to tort principles.... Miller, 902 F.2d at 575. 5