Arizona Court of Appeals Division Two Holds That The Economic Loss Doctrine Does Not Bar Tort Recovery For Agricultural Seeds Destroyed By Defective Growth Media.

Miidas Greenhouses purchased 720 bales of peat moss from Global Horticultural in September 2003.  Unbeknownst to Miidas, the peat moss was not the same type they had purchased in earlier years, and due to its improper acidity and moisture content the peat destroyed all of the seeds Miidas planted.  Miidas brought suit asserting two contract claims as well as product liability and negligent misrepresentation tort claims. 

Global moved for summary judgment, arguing that the economic loss doctrine barred tort recovery.  The economic loss doctrine “precludes tort recovery for [economic] losses absent personal injury or damage to other property.”  Flagstaff Affordable Hous. Ltd. P’ship v. Design Alliance, Inc., 223 Ariz. 320, 322 ¶ 9, 223 P.3d 664, 666 (2010).  The doctrine acknowledges that tort liability is intended to promote safety, and thus where no potential danger exists contract law provides exclusive remedies.  Salt River Project Agr. Imp. and Power Dist. v. Westinghouse Elec. Corp., 143 Ariz. 368, 377, 694 P.2d 198, 207 (1984).  The trial court agreed with Global and granted summary judgment.

Division Two of the Arizona Court of Appeals rejected the trial court’s view and vacated the judgment.  The Court noted that Flagstaff took a dim view of Salt River but did not overrule the earlier case, and then applied the three-part Salt River test to determine whether the economic loss doctrine applies in this case: (1) the nature of the product defect, the manner in which the loss occurred, and (3) the type(s) of loss or damage that resulted.

The Court found that all three factors weighed against applying the economic loss doctrine in this case.  Although the peat moss did not pose a danger similar to a large fire or explosion, it was nevertheless dangerous because it harmed the seeds, which were the property of Miidas.  The Court also acknowledged that the damage to the seeds was not sudden but it was calamitous, and therefore qualified as an accident.  Finally, the Court held that Salt River offers “no support” for the idea that the damage to the seeds is irrelevant because an award of lost profits also may be made.

Having determined that the economic loss doctrine does not apply in this case, the Court declined to decide two other issues presented: whether the doctrine applies to parties with no contract between them, and whether the doctrine would bar the negligent misrepresentation claim as well as the product liability claim.

Judge Kelly authored the opinion; Judge Vásquez and Judge Eckerstrom concurred.

s Greenhouses purchased 720 bales of peat moss from Global Horticultural in September 2003.  Unbeknownst to Miidas, the peat moss was not the same type they had purchased in earlier years, and due to its improper acidity and moisture content the peat destroyed all of the seeds Miidas planted.  Miidas brought suit asserting two contract claims as well as product liability and negligent misrepresentation tort claims. 

Global moved for summary judgment, arguing that the economic loss doctrine barred tort recovery.  The economic loss doctrine “precludes tort recovery for [economic] losses absent personal injury or damage to other property.”  Flagstaff Affordable Hous. Ltd. P’ship v. Design Alliance, Inc., 223 Ariz. 320, 322 ¶ 9, 223 P.3d 664, 666 (2010).  The doctrine acknowledges that tort liability is intended to promote safety, and thus where no potential danger exists contract law provides exclusive remedies.  Salt River Project Agr. Imp. and Power Dist. v. Westinghouse Elec. Corp., 143 Ariz. 368, 377, 694 P.2d 198, 207 (1984).  The trial court agreed with Global and granted summary judgment.

Division Two of the Arizona Court of Appeals rejected the trial court’s view and vacated the judgment.  The Court noted that Flagstaff took a dim view of Salt River but did not overrule the earlier case, and then applied the three-part Salt River test to determine whether the economic loss doctrine applies in this case: (1) the nature of the product defect, the manner in which the loss occurred, and (3) the type(s) of loss or damage that resulted.

The Court found that all three factors weighed against applying the economic loss doctrine in this case.  Although the peat moss did not pose a danger similar to a large fire or explosion, it was nevertheless dangerous because it harmed the seeds, which were the property of Miidas.  The Court also acknowledged that the damage to the seeds was not sudden but it was calamitous, and therefore qualified as an accident.  Finally, the Court held that Salt River offers “no support” for the idea that the damage to the seeds is irrelevant because an award of lost profits also may be made.

Having determined that the economic loss doctrine does not apply in this case, the Court declined to decide two other issues presented: whether the doctrine applies to parties with no contract between them and whether the doctrine would bar the negligent misrepresentation claim as well as the product liability claim.

Judge Kelly authored the opinion; Judge Vásquez and Judge Eckerstrom concurred.