Opinion ID: 1235030
Heading Depth: 3
Heading Rank: 3

Heading: Sovereign's Negligence Claim Against BJ's.

Text: The district court dismissed Sovereign's negligence claim pursuant to Fed.R.Civ.P. 12(b)(6) because the claim was barred by the economic loss doctrine. 427 F.Supp.2d at 533. The Economic Loss Doctrine provides that no cause of action exists for negligence that results solely in economic damages unaccompanied by physical or property damage. Adams v. Copper Beach Townhome Communities, L.P., 816 A.2d 301, 305 (Pa.Super.2003). [T]he Economic Loss Doctrine is concerned with two main factors: foreseeability and limitation of liability. Id. at 307 Pennsylvania appellate courts first discussed this doctrine in Aikens v. Baltimore & Ohio R.R. Co., 348 Pa.Super. 17, 501 A.2d 277 (1985). There, employees of a manufacturing company sued a railroad company to recover wages lost when their plant had to close because of damage inflicted by a derailment allegedly caused by the railroad company's negligence. The employees did not suffer any personal injuries or loss of property. In appealing the trial court's judgment on the pleadings in favor of the railroad, the employees argued that the Pennsylvania Superior Court should recognize a cause of action to compensate a party suffering purely economic loss, absent any direct physical injury or property damage, as a result of the negligence of another party. 501 A.2d at 278. The Superior Court declined the invitation; instead, the court adopted the general rule set forth in the Restatement (Second) of Torts § 766C. That rule provides as follows: Negligent Interference with Contract or Prospective Contractual Relation. One is not liable to another for pecuniary harm not deriving from physical harm to the other, if that harm results from the actor's negligently (a) causing a third person not to perform a contract with the other, or (b) interfering with the other's performance of his contract or making the performance more expensive or burdensome, or (c) interfering with the others acquiring a contractual relation with a third person. The Superior Court noted that under § 766C, recovery for purely economic loss occasioned by tortuous interference with contract or economic advantage is not available under a negligence theory. 501 A.2d at 278 (citation omitted). As the Superior Court explained, the roots of this well-established rule reach back to the U.S. Supreme Court's decision in Robins Dry Dock and Repair Co. v. Flint, 275 U.S. 303, 48 S.Ct. 134, 72 L.Ed. 290 (1927). The Superior Court quoted from the Supreme Court's decision in Flint, in concluding that: negligent harm to economic advantage alone is too remote for recovery under a negligence theory. The reason that a plaintiff cannot recover stems from the fact that the negligent actor has no knowledge of the contract or prospective relation and thus has no reason to foresee any harm to the plaintiff's interest. 501 A.2d at 279. Moreover, as the Superior Court stressed, there are sound public policy reasons to condition tort recovery on injury to person or property. [A]llowance of a cause of action for negligent interference with economic advantage would create an undue burden upon industrial freedom of action, and would create a disproportion between the large amount of damages that might be recovered and the extent of defendant's fault. See Restatement (Second) of Torts Sec. 766c, comment a (1979). To allow a cause of action for negligent cause of purely economic loss would be to open the door to every person or business to bring a cause of action. Such an outstanding burden is clearly inappropriate and a danger to our economic system. Id. Accordingly, the Superior Court held that no cause of action exists for negligence that causes only economic loss. Id. In its negligence claim against BJ's, Sovereign is seeking to recover the costs associated with replacement of some of its customers' Visa cards and the amounts it paid to reimburse customers whose magnetic-stripe data was used for fraudulent purchases. Sovereign tries to get around the fatal limitation of the economic loss doctrine by relying on the Pennsylvania Supreme Court's decision in Bilt-Rite Contractors, Inc. v. The Architectural Studio, 581 Pa. 454, 866 A.2d 270 (2005). Sovereign claims that Bilt-Rite severely weakened the economic loss doctrine as first announced in Aikens v. Baltimore & Ohio R.R. Co., supra . Sovereign first claims that the district court erred in assessing its losses in purely economic terms, because it also incurred a loss of property, i.e. money, because of BJ's alleged negligence. The argument is meritless. Not surprisingly, Sovereign cites no authority to support its contention that its financial loss negates the economic loss doctrine. Indeed, the argument would totally eviscerate the economic loss doctrine because any economic loss would morph into the required loss of property and thereby furnish the damages required for a negligence claim. Sovereign also attempts to pirouette around the economic loss doctrine by arguing that it only applies when the plaintiff has suffered an unforeseeable loss, and then claiming that its loss was clearly a foreseeable result of BJ's negligence. We do not doubt that Sovereign's loss was a foreseeable result of not taking appropriate precautions to protect its cardholders' information. However, that does not advance Sovereign's claim to the extent that Sovereign believes. We agree that the court in Aikens did explain that the economic loss doctrine was partly the result of a policy consideration to not impose loss for an unforeseeable result. However, that is of no consequence here because Sovereign did not incur any loss of property. Moreover, Sovereign's argument ignores the thrust of the public policy rational explained in Aikens. Finally, Sovereign claims that the decision in Bilt-Rite Contractors, Inc. v. The Architectural Studio, supra , severely weakened the economic loss doctrine by permitting negligence claims to proceed without regard to economic loss. There, Bilt-Rite, a general contractor, entered into a construction contract to build a new school for a school district. In formulating its winning bid for the contract, Bilt-Rite claimed that it had relied on the drawings and specifications prepared by an architect who had been hired by the school district for the very purpose of preparing drawings and specifications that were to be used to prepare bids. However, during the subsequent construction, Bilt-Rite discovered that some of the representations in the specifications were inaccurate. Bilt-Rite incurred significant cost overruns in attempting to build the building, and it sued the architect for negligent misrepresentation to recover its losses. The trial court sustained the architect's preliminary objections based on the operation of the economic loss doctrine and the Pennsylvania Superior Court affirmed. On appeal, the Pennsylvania Supreme Court held that the economic loss doctrine did not bar the contractor's negligent misrepresentation action. Sovereign relies on the following language from the Pennsylvania Supreme Court's majority opinion: Here, [the contractor] had no contractual relationship with [the architect]; thus, recovery under a contract is not available to [the contractor]. Having found that [the contractor] states a viable claim for negligent misrepresentation..., and that privity is not a prerequisite for maintaining such an action, logic dictates that [the contractor] not be barred from recovering the damages it incurred, if proven. Indeed, to apply the economic loss doctrine ... would be non-sensical: it would allow a party to pursue an action only to hold that, once the elements of the cause of action are shown, the party is unable to recover for its losses. 866 A.2d at 288 (emphasis is Sovereign's). Sovereign attempts to leverage this excerpt from the majority opinion in Bilt-Rite into a claim that applying the economic loss doctrine here would be equally nonsensical. However, this argument is completely without merit. Sovereign concedes that the bulk of the Supreme Court's opinion in Bilt-Rite focuses not on the economic loss doctrine, but on whether or not in the context of a negligent misrepresentation claim, plaintiff could establish the existence of a duty on the part of the architect absent privity of contract. Sovereign's Br. at 42. Moreover, the decision did not, as Sovereign claims, severely weaken the economic loss doctrine. Rather, the Court simply made an exception to the doctrine to allow a commercial plaintiff recourse from an expert supplier of information with whom the plaintiff has no contractual relationship, when the plaintiff has relied on that person's special expertise and the supplier negligently misrepresents the information to another in privity. 866 A.2d at 286. That is simply not our case. [8] The Pennsylvania Supreme Court never suggested that it intended to severely weaken or undermine the economic loss doctrine in a case such as this. It simply carved out a narrow exception when losses result from the reliance on the advice of professionals. Thus, the district court correctly held that Sovereign's negligence claim against BJ's was barred by the economic loss doctrine.