Dinsmore Instrument Company Robert C. Dinsmore v. Bombardier, Incorporated, D/B/A Sea-Doo/ski-Doo Digico Ltee

Citations: 199 F.3d 318; 40 U.C.C. Rep. Serv. 2d (West) 118; 1999 U.S. App. LEXIS 32122; 1999 WL 1125190Docket: 98-1951

Court: Court of Appeals for the Sixth Circuit; December 9, 1999; Federal Appellate Court

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Dinsmore Instrument Company and its president, Robert C. Dinsmore, appeal a summary judgment favoring Bombardier, Inc. and Digico LTEE regarding Dinsmore's tort claims. Dinsmore contends that the economic loss doctrine, which limits tort claims to contractual disputes, does not apply to their case. They assert that: 1) the doctrine is restricted to claims by buyers against non-performing sellers; 2) they have valid claims for fraud in the inducement, an exception to the doctrine; 3) they were denied adequate discovery due to the appellees' actions; and 4) torts of intentional interference with contractual rights and prospective economic advantage also serve as exceptions.

The case involves a contract where Bombardier ordered approximately 20,000 compasses from Dinsmore for installation on jet-skis. Despite encountering issues, Bombardier fulfilled its payment obligations, leaving no contractual disputes. Dinsmore's tort claims allege that Bombardier aimed to obtain trade secrets and that Digico interfered with their contractual relationship to benefit its dealings with Bombardier. Dinsmore seeks over $90 million in damages.

The appellate court reviews summary judgment de novo, affirming the lower court's decision based on the absence of genuine material fact disputes. The viability of Dinsmore's fraud claim hinges on whether it falls under the economic loss doctrine, which the Michigan Supreme Court established, stating that economic losses due to a product malfunction are remedied solely through contract law.

In Michigan law, federal courts adhere to the decisions of the Michigan Supreme Court. If that court has not addressed an issue, federal courts must determine state law based on available data, giving weight to state appellate court principles unless compelling evidence suggests otherwise. The economic loss doctrine, established by the Michigan Supreme Court, applies to both buyers and sellers, asserting that tort claims like negligence are suitable for unanticipated physical injuries, while contract principles govern consequential damages that parties could address in their agreements. This doctrine prevents commercial purchasers from suing in tort for economic losses, ensuring that contract law remains effective and that the Uniform Commercial Code (UCC) is not circumvented. 

Dinsmore contends that its fraud claim against Bombardier should be exempt from the economic loss doctrine, arguing that the fraud allegations are separate from the contractual dispute. However, the court found that Dinsmore's fraud claims, which were linked to the contract negotiations, are not extraneous and are essentially claims for breach of contract. Consequently, the district court correctly characterized Dinsmore's action as a contract issue and granted summary judgment against Dinsmore.

Additionally, Dinsmore's claims regarding Bombardier's failure to respond to discovery requests were deemed irrelevant to the appeal since Dinsmore’s fraud claim was already dismissed as a matter of law, and the discovery requests pertained to that claim.

Summary:

The grant of summary judgment against Dinsmore for its tort claims against Digico, specifically for intentional interference with existing contractual rights and interference with prospective economic advantage, is upheld. Dinsmore contends that Digico modified contract terms related to compass sensor specifications and made bad faith settlement offers. However, Dinsmore's own admissions indicate that Digico was a party to the contract concerning Bombardier's purchase of compass sensors from Dinsmore. The contractual relationship established that Dinsmore's claims stem from this arrangement, necessitating their dismissal under the economic loss doctrine, which confines Dinsmore's remedies to contract law. Consequently, the district court's judgment is affirmed.