On April 13, 2022, the Supreme Court of Ohio will hear oral argument in Navistar Inc. v. Dutchmaid Logistics, Inc., 2021-0719.  At issue in this case is whether a contractual disclaimer can thwart a tort claim that is based on the same set of facts and the same amount of damages.

Case Background

Dutchmaid Logistics (“Dutchmaid”) is the owner and operator of a commercial trucking fleet in the business of hauling dry and refrigerated commodities.  Navistar manufactures heavy- duty commercial trucks and diesel engines. From 2008-2009, Dutchmaid purchased nine trucks from Navistar equipped with Navistar’s MaxxForce 1 engine.  After about 100,000 miles, the trucks experienced significant mechanical problems due to a failure with the Exhaust Gas Recirculation (EGR) system.  An EGR cooler is the part of the EGR system that pumps engine exhaust back into the engine in order to lower emissions.  All of Dutchmaid’s MaxxForce 1 trucks lost their EGR coolers.

In 2010, Dutchmaid began the process of purchasing new trucks, and met with Navistar to discuss trucks with the MaxxForce 2 engine.  Dutchmaid stressed to Navistar that they would need assurances as to the quality of the trucks before agreeing to buy from them again.  After visiting Navistar’s plant and receiving multiple assurances as to the reliability of the trucks, Dutchmaid purchased twenty trucks with MaxxForce 2 engines from Navistar.  In the subsequent 3 years, these trucks were in the shop for repairs over 100 times.  In 2015 Dutchmaid filed a lawsuit against Navistar for breach of express warranty and fraudulent nondisclosure, seeking the same damages for each claim.  Dutchmaid asserted that the trucks violated disputed oral promises allegedly made by Navistar about their performance. 

At trial, a Dutchmaid representative testified that he repeatedly inquired about issues with the EGR system, which remained as a major concern for Dutchmaid.  Each time Navistar assured him that the MaxxForce 2 was a quality engine with an EGR system that would last the life of the engine, which was one million miles. These repeated assurances were the main factors in Dutchmaid’s decision to buy the MaxxForce 2 trucks.  But these trucks were regularly down for repairs, resulting in significant lost profits for Dutchmaid

During this time, Navistar executives were aware that the MaxxForce 2 engines had issues and that they hadn’t adequately tested the truck before its launch as evidenced by internal company emails.  One Navistar employee testified that when the MaxxForce 2 trucks launched, the EGR had a life of 225,000 miles, not one million miles. He further stated that this wasn’t disclosed to Dutchmaid or other customers because the engines were still meeting reliability goals and many changes and improvements were made to the system between the trucks launched in 2010 and Dutchmaid’s first order in July 2011. 

After hearing all the evidence in the case, the jury found in favor of Dutchmaid on the fraudulent nondisclosure claim and in favor of Navistar on the breach of warranty claims.  The jury awarded Dutchmaid compensatory damages in the amount of $75,000 for lost profits, $200,000 for diminished value, and $1,025,000 in punitive damages.  Licking County Court of Common Pleas Judge W. David Branstool journalized the jury’s verdict.  Navistar appealed.

The Appeal

On appeal, in a unanimous decision, the Fifth District affirmed the trial court’s judgment. 

The opinion written by Judge William Hoffman and joined by Judges Craig Baldwin and Earle Wise Jr. held that the economic loss rule does not bar Dutchmaid’s fraud claim because Navistar breached duties independent of those that arose under warranty.  Additionally, the parole evidence rule doesn’t prohibit evidence about Navistar’s nondisclosure because there’s a difference between agreements that vary the terms of a contract and statements that induce a party into entering into that contract.  Finally, a party can’t disclaim its fraudulent concealment of material information merely by using boilerplate warranty language. The appeals court also determined that since a jury found that Navistar did not breach the warranty, the damages the jury awarded to Dutchmaid for its fraud claim were not duplicative of the damages sought for breach of warranty.  

Key Statutes and Precedents

Galmish v. Cicchini, 90 Ohio St. 3d 22 (2000) (“Absent fraud, mistake or other invalidating cause, the parties’ final written integration of their agreement may not be varied, contradicted or supplemented by evidence of prior or contemporaneous oral agreements, or prior written agreements.”)

Regal Cinemas, Inc. v. W&M Properties, 90 Fed. App’x 824 (6^th Cir. 2004) (Because the jury did not find a breach of contract, “there is no concern that the fraud damages duplicate the damages resulting from the breach.”)

Burns v. Prudential Securities, Inc., 2006-Ohio-3550  (“A tort claim can proceed where ‘the facts of the case show an intentional tort committed independently but in connection with a breach of contract.’”)

Northpoint Properties v. Charter One Bank, 8^th Dist. 2011-Ohio-2512 (the presence of a disclaimer doesn’t necessarily shield a defendant from liability and doesn’t preclude a plaintiff from showing justifiable reliance.)

Votes to Accept the Case

Yes: Justices Fischer, Donnelly, Brunner, and DeWine

No: Chief Justice O’Connor, Justices Kennedy and Stewart

Navistar’s Propositions of Law Accepted for Review

Proposition of Law 1

A fraudulent nondisclosure claim is barred as a matter of law when it contradicts an express disclaimer in the parties’ agreement. 

Proposition of Law 2

A fraud claim is barred as a matter of law when it doesn’t seek damages in addition to those sought under a concurrently brought contract claim

Dutchmaid’s Response to Proposition of Law 1

The disclaimer language in Navistar’s boilerplate warranty does not bar Dutchmaid’s fraud by nondisclosure claim. 

Dutchmaid’s Response to Proposition of Law 2

Dutchmaid was not barred from asserting a claim for fraud by nondisclosure because Navistar also gave Dutchmaid a warranty.

Navistar’s Argument

It’s a long-recognized notion that a fraud claim cannot stand where that claim contradicts an express disclaimer in the parties’ written agreement. This promotes the longstanding idea of freedom of contract.  Under the parole evidence rule, a written agreement cannot be contradicted by evidence of a prior oral or written agreement.  While there is an exception to this rule to allow evidence of a fraudulent inducement, this exception doesn’t apply where the alleged fraud is directly contradicted by a written agreement. 

Express disclaimers can also negate the elements of fraud.  For a fraud claim to stand, a plaintiff must have had justifiable reliance on a representation or duty to disclose a material fact.  Ohio law makes it clear that no party can claim a justifiable reliance on any representation that is expressly disclaimed by the other party.  The disclaimer gives fair warning to the opposing party as to the reliability of any representation made outside of the “four corners” of the contract. So, no party can claim justifiable reliance when faced with an express disclaimer from the opposing party.  Therefore, it wasn’t reasonable for Dutchmaid to rely on Navistar’s purported oral representations after agreeing that the only representations made were those in the written warranty. 

Ohio law is very clear that a fraud claim is barred when it seeks the exact same damages as a concurrent contract claim.  Under the additional damages rule, the damages for the tort claim must be distinct from and in addition to those allegedly suffered under the breach of contract.  This rule operates to police the boundary between tort and contract by preventing plaintiffs from strategically recharacterizing their contract claims as fraud claims.  This is important as punitive damages and awards for attorney’s fees are available for tort claims but not for contract claims.  

In exchange for Navistar’s promise to make repairs, Dutchmaid agreed to an express disclaimer, which made clear that the only promises Navistar was making in connection with the trucks were contained in the written terms of their agreement. 

Here, Dutchmaid fails to assert any damages distinct from and in addition to those suffered under its contract claim.    Both before and during the trial Duthcmaid asserted the exact same damages under each claim: loss of profits and diminished value.  The amount of damages suffered by Dutchmaid in both its fraud and contract claims amounts to $864,146.  The damages are identical, and Dutchmaid fails to identify any damages attributable only to tortious conduct.  The Fifth District’s decision should be reversed.  

Dutchmaid’s Argument

A disclaimer is not the impermeable shield that Navistar would like the court to believe.  Ohio courts have long rejected the idea that a disclaimer can free a party from liability for fraud.  Where fraudulent conduct that induces a party to enter into an agreement exists, the parole evidence rule doesn’t exclude evidence of that fraudulent conduct.  What’s more, the disclaimer language in the warranty did not apply to the concealment of material information.  That language is boilerplate and doesn’t address active concealment of material information as Navistar is alleging.  Further, nothing in the disclaimer directly contradicts Dutchmaid’s fraudulent nondisclosure claim.  There’s nothing in the disclaimer about the specific types of information that Navistar failed to disclose, and there’s no provision specifically barring the fraudulent nondisclosure claim.  Simply put, if the information Navistar concealed had been disclosed, Dutchmaid never would have bought the trucks.  As the appeals court found, “a party cannot escape liability for his own deliberate misrepresentations and/or omissions by inserting boilerplate disclaimers into a limited warranty.”

The Uniform Commercial Code does not preclude a plaintiff from pursuing common law tort claims like fraud.  In fact, where a party like Dutchmaid has been fraudulently induced into an agreement, that party is permitted to pursue a fraud claim independent of any contract claim that may have also arisen.  A claim for fraud and a claim for breach of express warranty have different elements and arise from different duties.  Navistar relies on products liability cases and cases arising only out of contract.  This isn’t a products liability issue and Navistar had an independent obligation outside of the contract to not commit fraud, so these cases are inapplicable. 

Navistar’s argument that a plaintiff is barred from asserting a fraud claim when it’s also seeking the same damages for breach of contract is unreasonable and isn’t supported by Ohio law.  The jury found in favor of Navistar on its contract claim, so there’s no concern that the damages under the fraud claim are duplicative.  Contrary to Navistar’s arguments this is not a situation where a plaintiff is asserting a breach of express warranty claim and a fraud claim based on the very same representations.  Here, the breach of warranty claim is based exclusively on the written warranty.  Conversely, the fraud claim is based on Navistar’s failure to disclose before the transaction was completed and separate from the express warranty given.  Navistar breached its duty when it defrauded Dutchmaid so the claim isn’t purely a contractual one.  Therefore, this is not a situation where a party is attempting to change a contractual claim into a tort one.  The Fifth District should be affirmed. 

Student Contributor: James Gravely