North Carolina Business Litigation Report

Hospira Inc. v. Alphagary Corp., February 16, 2006 (Diaz)(unpublished)

This opinion contains a thorough discussion of the economic loss doctrine. Plaintiff had purchased "sight chambers," used for monitoring intravenous feeds, made with raw material supplied by defendant. Defendant had used low grade materials to fulfill its end of the contract, which led to plaintiff having to recall millions of sight chambers.

As the Court saw it, plaintiff was clearly seeking to recover for economic loss, which were the financial losses it suffered when it was forced to recall a product that did not perform as expected because of a defect in a component part. The Court was sensitive to the notion that a plaintiff should not manufacture a tort claim out of a simple breach of contract claim and held that "[b]oiled to its essence, [defendant's] claim is that [plaintiff] should have anticipated and planned for the possibility of fraud in this transaction and that, having failed to do so, it may look only to its contract remedies under the UCC. The law, however, should not foster commercial negotiations that 'begin with the assumption that the other party is lying.'"

The Court recited the principles it later reiterated in the Club Car, Inc. v. The Dow Chemical Company case, and held that plaintiff was entitled to proceed on a fraud claim because plaintiff's claim "smacked of tort." The Court also distinguished Judge Tennille's opinion in Coker v. DaimlerChrysler Corp.

It further held that a claim for negligent misrepresentation is not barred by the economic loss doctrine. Plaintiff's claim for unfair and deceptive practices was allowed to proceed as well. The Court did, however, dismiss plaintiff's negligence claim, holding that "North Carolina law prohibits the bringing of a negligence action against the manufacturer or seller of a product for economic losses sustained as a result of the product's failure to perform as expected."

Thanks to Brad Kutrow at Helms Mullis & Wicker for sending me this opinion.

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Mack Sperling
Brooks Pierce, LLP
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