JUDITH E. LEVY, United States District Judge.
Carhartt Inc. sued Innovative Textiles, Inc. and Innovative Textiles, LLC alleging seven counts: (1) breach of contract, (2) breach of express and implied warranties, (3) negligence, (4) fraud, (5) silent fraud, (6) innocent misrepresentation, (7) false advertising under the Lanham Act, and (8) successor liability against Innovative Textiles, LLC.
This case involves fabric that Carhartt uses to make garments that it markets as flame-resistant. (ECF No. 151, PageID.68.) Innovative develops flame-resistant fabrics that contain modacrylic fibers, which are acrylic fibers with flame-resistant properties. (ECF No. 141, PageID.5732-33.) Carhartt contracted with Innovative for development of a flame-resistant fleece fabric known as Style 2015, which is the fabric at issue in this case. (ECF No. 151, PageID.6196.)
Innovative does not manufacture the fabric it designs. (ECF No. 141, PageID.5733.) Rather, it hires knitters to knit yarn into fabric and finishers to finish the fabric. (Id.) Fabric "finishing" in this case includes the process of taking the fabric from the knitter, dying the fabric, applying additional chemicals such as a product known as "durable water repellant," and curing those chemicals. (ECF No. 148, PageID.5962-63, 5966-67.) For Style 2015, Innovative contracted with Gentry Mills to perform the finishing. (ECF No. 141, PageID.5733.)
Carhartt relied on Innovative to conduct flame-resistance testing before shipping finished Style 2015 fabric to Carhartt.
On or around June 2016, however, Carhartt tested finished pieces of Style 2015 and discovered the pieces did not meet its specifications. (ECF No. 141-11, PageID.5818.) Carhartt notified Innovative, which then tested samples of Style 2015 fabrics dating back to 2014, and found that the samples did not pass. (ECF No. 167, PageID.7305.) Carhartt issued a "voluntary product notification," essentially a voluntary recall, of the garments that had been made from Style 2015. (ECF No.141 PageID.5736.) No one reported any injuries from the products made from Style 2015. (Id.)
During the parties' 2016 investigation of the root cause for the testing failures, Carhartt contends it discovered that in approximately 2013, Innovative switched from a modacrylic fiber called Protex-C to a different fiber called F-12. (ECF No.167, PageID.7303.) Carhartt attributes the fire resistance test failures to Innovative's fiber change. (Id. at 7304.) It alleges that Innovative breached the parties' contract by switching fabrics and failing to disclose the change to Carhartt. (Id.)
Innovative disagrees and alleges that it "occasionally mentioned" the fabric switch. (ECF No. 141, PageID.5733.) Innovative contends that its contract with Carhartt required only that it use modacrylic fiber, "but did not specify a particular kind of modacrylic fiber." (Id.) Innovative also argues that there "was no difference" between
Carhartt additionally argues that, unbeknownst to it, Style 2015 failed its annual UL certification testing in 2014 and "obtained numerous test results showing failures" in 2015 and 2016, in breach of their contract. (ECF No.167, PageID.7304.) Innovative argues that Carhartt's specifications "do[] not require Innovative Textiles to guarantee that its products will comply with Carhartt's specifications in perpetuity." (ECF No. 141, PageID.5744.) Innovative also claims that the fabric did "satisfy those specifications when originally delivered to Carhartt," and that the failures well after-the-fact were due to aging, improper storage, and other factors not attributable to Innovative. (Id.)
Innovative further argues that the testing failures were the fault of Gentry Mills' improper finishing. Specifically, Innovative argues that Gentry Mills' application of durable water repellant, improper curing, and machinery problems caused Style 2015 to fail the flammability tests. (ECF No. 157, PageID.6839-44.)
Gentry Mills argues that Innovative selected the durable water repellant chemical composition and controlled the finishing specifications, which Gentry Mills followed exactly. (ECF No. 148, PageID.5966-67.) It also argues that it never knew the test failure results, nor had any notice of performance issues, until 2016 because lab results went directly to Innovative, and not to Gentry Mills. (Id.)
Carhartt sued Innovative in November 2017. (ECF No. 1.) Innovative then brought a third-party complaint against Gentry Mills. (ECF No. 8.) The only remaining claim against Gentry Mills is Innovative's breach of contract claim. (ECF No. 53.) For the reasons set forth below, Innovative's motion for summary judgment is granted in part (ECF No. 141) and Carhartt's motion for summary judgment is denied in part.
Summary judgment is proper when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The Court may not grant summary judgment if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The Court "views the evidence, all facts, and any inferences that may be drawn from the facts in the light most favorable to the nonmoving party." Pure Tech Sys., Inc. v. Mt. Hawley Ins. Co., 95 F. App'x 132, 135 (6th Cir. 2004) (citing Skousen v. Brighton High Sch., 305 F.3d 520, 526 (6th Cir. 2002)).
Counts IV through VII in Carhartt's complaint involve negligence and fraud claims. (ECF No. 82.) Both Carhartt and Innovative cross-move for summary judgment on these claims. For the reasons set forth below, Innovative's motion for summary judgment is granted and Carhartt's motion for summary judgment is denied as to these claims.
The parties do not dispute that Michigan law applies to Carhartt's claims against Innovative.
Id. at 521-22, 486 N.W.2d 612 (internal citations omitted); see also Bev Smith, Inc. v. Atwell, 301 Mich.App. 670, 688, 836 N.W.2d 872 (2013) (holding that the plaintiff's fraud-in-the-inducement, fraudulent misrepresentation, and silent fraud claims were barred by the economic loss doctrine because they "essentially reiterated the allegations set forth in plaintiff's breach of contract claim."); and see General Motors Corp. v. Alumi-Bunk, Inc., 482 Mich. 1080, 1080, 757 N.W.2d 859 (2008) (Young, J., concurring) ("[T]here is no way to characterize these identical allegations as separate claims for breach of contract and fraudulent inducement.").
With respect to Carhartt's negligence claim, Innovative argues that the allegations "concern the quality of Innovative Textiles' product. They focus on Carhartt's frustrated expectations as a buyer." (ECF No. 141, PageID.5749.) Innovative argues that the duties and alleged losses arise out of the parties' contract. (Id.) Consequently, Carhartt's claims are barred under the economic loss doctrine. (Id.)
In response, Carhartt argues that its negligence claim should survive summary judgment because Innovative breached certain non-contractual duties. (ECF No. 167, PageID.7315.) Those duties were: "(1) a duty to test Style 2015 properly, and (2) a duty to disclose material changes to Style 2015 and testing failures at UL. A general duty of care encompasses both of these duties." (Id.)
Carhartt also argues that summary judgment should be granted in its favor on this claim. (ECF No. 151, PageID.6214.) It argues, in essence, that the duties Innovative breached arose out of "industry standards and the 2112 standard itself," which were outside of the parties' contract. (Id. at 6214-15.)
Carhartt cites to two non-binding Michigan court of appeals cases in support of its motion. The first, Challenge Mach. Co. v. Mattison Mach. Works, 138 Mich.App. 15, 26-27, 359 N.W.2d 232 (1984) involved parties to a contract for the purchase of a grinder machine. The plaintiff brought both breach of contract and warranty claims as well as a claim for negligent installation of the machine against the defendant. The court found that claims related to the machine's installation were sufficiently "separate from its breach of warranty claims," such that the plaintiff could maintain a separate negligence claim against the defendant. "Negligent performance of an undertaking, even though grounded upon a contractual relationship, may constitute an actionable tort as well as a breach of contract. Id. at 27, 359 N.W.2d 232 (internal citations omitted.)
The second case Carhartt cites, Conant v. State Farm Fire & Cas. Co., No. 260524, 2006 WL 1411216 (Mich. Ct. App. May 23, 2006), is an unpublished Michigan court of appeals decision that presents an entirely different set of facts and interests than are present here and is inapplicable.
Carhartt and Innovative's contract contains flammability and fiber content specifications. (ECF 141-5, PageID.5792.) These are the very terms that Carhartt argues were breached; but because they are written into the terms of the contract, they cannot form the basis for a tort claim. Accordingly, the economic loss doctrine bars Carhartt's negligence claim.
In conclusion, Innovative's motion for summary judgment on Carhartt's negligence count is granted and Carhartt's motion for summary judgment on this claim is denied. The negligence claim is dismissed.
Next, Innovative moves for summary judgment on Carhartt's fraud claims.
Carhartt's fraud theories reflect "a concern about the quality expected by the buyer and promised by the seller, which is the essence of a warranty action under the UCC." Huron Tool and Eng'g Co. v. Precision Consulting Servs., Inc., 209 Mich.App. 365, 369-70, 532 N.W.2d 541 (1995) (citing Neibarger, 439 Mich. at 531, 486 N.W.2d 612.) Carhartt's fraud claims are grounded in contract, and therefore the economic loss doctrine applies to bar these claims. See Bev Smith, 301 Mich. App. at 688, 836 N.W.2d 872 (holding that the
Carhartt also argues that a fraud-in-the-inducement theory of liability applies. ECF No. 167, PageID.7318-21.) Fraud-in-the-inducement has been recognized by the Michigan court of appeals as an exception to the economic loss doctrine. See Huron Tool, 209 Mich. App. at 370-71, 532 N.W.2d 541.
Fraud-in-the-inducement "addresses a situation where the claim is that one party was tricked into contracting. It is based on pre-contractual conduct which is, under the law, a recognized tort." Id. at 371, 532 N.W.2d 541 (citing Williams Electric Co. Inc. v. Honeywell Inc., 772 F.Supp. 1225, 1237-38 (N.D. Fla. 1991).)
To establish a claim for fraudulent inducement under Michigan law, Carhartt must allege that:
Custom Data Solutions, Inc. v. Preferred Capital Inc., 274 Mich.App. 239, 243, 733 N.W.2d 102 (2006) (citations omitted).
Those allegations must be supported by evidence to overcome a motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (stating that at the summary judgment stage, the judge "unavoidably asks whether reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict—`whether there is [evidence] upon which a jury can properly proceed to find a verdict for the party producing it, upon whom the onus of proof is imposed.'")
Carhartt argues that Innovative's representations "induced Carhartt to continuously and repeatedly issue purchase orders for Style 2015 fabric." (ECF No. 167, PageID.7320.) However, beyond that, Carhartt does not cite to any evidence regarding Innovative's alleged misrepresentation, such as when the misrepresentation or misrepresentations occurred, who made them, whether the individual or individuals making them had knowledge of their falsity or were reckless in making them, or any other facts that would support its claim.
Accordingly, the fraud-in-the-inducement exception to the economic loss doctrine does not apply. Innovative's motion for summary judgment is granted and Carhartt's fraud and fraud-in-the-inducement claims are dismissed.
Innovative's motion for summary judgment on Carhartt's Lanham Act claim is also granted. The Lanham Act allows a party damaged by false commercial advertising to bring a civil action. 11 U.S.C. § 1125(a). Section 1125(a) creates two distinct bases for liability: false association, and false advertising. Id. Here, Carhartt alleged false advertising. (ECF No. 82.) The false advertising provision of the Lanham Act provides, in relevant part:
15 U.S.C. § 1125(a).
The analytical framework for deciding a party's standing to maintain a Lanham Act false advertising claim must start with whether the plaintiff's "interests fall within the zone of interests protected by the law invoked." Lexmark Intern., Inc. v. Static Control Components, Inc., 572 U.S. 118, 129, 134 S.Ct. 1377, 188 L.Ed.2d 392 (2014) (internal citations omitted). Although the zone of interests test is "not especially demanding," id., it must still "allege an injury to a commercial interest in reputation or sales." Id. Moreover, it excludes certain types of claims:
Id. (internal citations omitted).
Innovative argues that Carhartt's Lanham Act claim fails as a matter of law because (1) Carhartt is not within the "zone of interests" protected under the Lanham Act because it does not allege an injury to a commercial interest in its reputation or sales; (2) there is no evidence of an injury "flowing directly" from deceptive advertising; and (3) Carhartt never identifies the specific advertising at issue. (ECF No. 141, PageID.5751-55.)
In response, Carhartt points to its allegation that it "clearly alleged an `injury to a commercial interest in reputation [and] sales.'" (ECF No. 167, PageID.7322.) Carhartt asserts that Innovative made "numerous false and misleading statements about its fabric [meeting safety standards] in its advertisements and on its website...," which influenced Carhartt's purchasing decisions. (ECF No. 82, PageID.3655.)
Carhartt also argues that it "invested substantial resources in the development of the garment line, forgoing development of other development [sic] in favor of utilizing Style 2015 fabric and made representations to customers regarding the properties and quality of the products containing ITI's fabric." (Id. at PageID.7322-23.) Carhartt does not, however, submit any documentary or other evidence in support of this argument. Without more, Carhartt's arguments are exactly the types of claims excluded under Lexmark, which requires more than an allegation that a customer was "hoodwinked into purchasing a disappointing product." Lexmark, 572 U.S. at 129, 134 S.Ct. 1377.
Carhartt's reliance on these allegations are not enough to overcome Innovative's motion for summary judgment on its Lanham Act claims. Carhartt has not demonstrated that there is an issue of material fact appropriate for trial. Accordingly, Innovative's motion for summary judgment as to Carhartt's Lanham Act claim is granted and this claim is dismissed.
For the reasons set forth above, the Court GRANTS in part Innovative's motion for summary judgment (ECF No. 141) and DENIES in part Carhartt's motion for summary judgment (ECF No. 151).
IT IS SO ORDERED.