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The Economic Loss Doctrine and Multiple Contracting Defendants: Is Contractual Privity Required With Each Defendant, Any Defendant, Anyone, No One?

August 9, 2017
Jonathan Holtz
Posted in: Commercial Law

The economic loss doctrine (ELD) bars tort claims for economic losses in claims arising in contract. The reasoning is: tort principals are better suited to address unanticipated accidents and injuries, while contract principals are better suited to address damages which the parties have, or could have, addressed in their agreement(s). Accordingly, in actions arising in contract, plaintiffs should rely on their contractual remedies rather than tort remedies, regardless of the label placed on the claim. However, in the event of multiple contracting defendants, the issue of whether contractual privity is required with each defendant in order to apply the ELD has been subject to different interpretation by New Jersey courts. The issue is best illustrated in the construction context where the contractor sues the owner in contract, and multiple other parties in tort. Does the contractor=s contract with the owner preclude tort claims against other parties involved in the project? More generally, among multiple contracting parties, does the ELD bar tort claims against a particular defendant when plaintiff lacks contractual privity with that particular defendant?

Discrepancies in state, federal, reported, and unpublished case law in New Jersey largely result in three different approaches. First, a conservative approach holds the ELD only bars a tort claim when plaintiff has a contract with that particular defendant (Conforti, SRC). Second, a liberal approach holds the ELD bars tort claims regardless of whether plaintiff has a contract with anyone (Longenecker). Finally, a compromised approach holds the ELD bars tort claims when plaintiff has a contract with any defendant (Saltiel, Horizon, Spectraserv, Schenker, NJAWC). The third approach is the controlling law in New Jersey, because Saltiel, a New Jersey Supreme Court decision, is still good law. However, Saltiel and its progeny leave open the issue of whether the ELD applies if application would leave plaintiff without a remedy.

The compromised approach best implements the goals of the ELD, honors the reasonable expectations of the parties, promotes parties to clarify their respective rights and responsibilities in contact documents, and complies with ideals of fundamental fairness. The same reasoning supports that application of the ELD should not hinge on whether plaintiff can assert the contract claim. Application of the ELD has many considerations other than contractual privity which are beyond the scope of this article, including the types of damages, statutory considerations, the specific contract terms involved, whether claims are intrinsic/extrinsic to the contract, independent duties owed, and special relationships between the parties.

Reprinted (in part) with permission from the March 22 issue of the New Jersey Law Journal. © [2017] ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.