JMB Manufacturing, Inc. v. Harrison Manufacturing, LLC.
799 F.3d 780
7th Cir.2015Background
- Child Craft (Indiana manufacturer) contracted with Summit (JMB Manufacturing, run by Ron Bienias) to supply raw wood components for a new furniture line; specifications required wood moisture content of 6–8%.
- Summit procured the goods from an Indonesian supplier (P.T. Cita); Bienias acted as Summit’s corporate representative and intermediary and told Child Craft the shipments met specs.
- Delivered goods did not conform (high moisture content); Child Craft refused payment, tried reworking, cancelled orders, burned through capital, and ceased operations.
- Summit originally sued Child Craft; Child Craft counterclaimed for breach of contract and negligent misrepresentation against Summit and Bienias, seeking multimillion-dollar damages.
- Before trial, Summit’s counsel moved to withdraw; Summit was briefly unrepresented, the district court entered default against Summit on counterclaims and dismissed Summit’s claims; only the negligent misrepresentation claim against Bienias (tried to the court) proceeded to judgment for Child Craft (~$2.7M after reduction).
- On appeal, the Seventh Circuit reversed the negligent-misrepresentation judgment (against Bienias and Summit) based on Indiana’s economic loss doctrine and agency-law principles, but affirmed other trial-court rulings except for the default-entry refusal regarding Summit’s negligent-misrepresentation counterclaim (which the Court directed be set aside and judgment entered for Summit on that claim).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Indiana's economic loss doctrine bars negligent-misrepresentation recovery for purely economic losses from nonconforming goods | Child Craft: negligent misrepresentation is available and Bienias had a special duty (acted as broker/advisor); tort remedy needed to avoid contractual limits | Bienias/Summit: losses are purely economic from nonconforming goods; economic loss rule bars tort recovery; statements were made as corporate agent within scope of authority | Held: Economic loss doctrine bars negligent-misrepresentation claim; tort claim not available for these purely economic commercial losses |
| Whether Bienias can be held personally liable despite acting as corporate agent | Child Craft: Bienias was an independent actor/broker and made affirmative misstatements, so personal tort liability should apply | Bienias: acted within scope of corporate authority; Greg Allen bars converting contract breaches into torts against agents | Held: Officer/agent not personally liable for negligent misrepresentation made within scope of authority; Greg Allen controls |
| Whether a special-duty exception (broker/professional) applies to impose tort liability | Child Craft: Bienias was a "broker"/industry expert; analogous to title insurers/lawyers who owe special duties | Bienias/Summit: no special relationship; broker label insufficient; Child Craft could have negotiated protections or inspected supplier | Held: No special-duty exception; factual record does not show Bienias held out as information-provider in a special-relationship context |
| Whether the district court abused discretion in entering default against Summit and refusing to set it aside | Child Craft: withdrawal of counsel justified default and dismissal of Summit’s claims to prevent prejudice/delay | Summit: short gap (about two weeks) in representation; default and multimillion-dollar exposure disproportionate; merits defense strong (economic loss doctrine) | Held: Court abused discretion refusing to set aside default on negligent-misrepresentation counterclaim; entry of default on that claim vacated and judgment directed for Summit; other docket-management decisions largely affirmed |
Key Cases Cited
- Indianapolis–Marion County Public Library v. Charlier Clark & Linard, P.C., 929 N.E.2d 722 (Ind. 2010) (articulates Indiana economic loss doctrine and limits tort recovery for purely economic loss)
- U.S. Bank, N.A. v. Integrity Land Title Corp., 929 N.E.2d 742 (Ind. 2010) (title-insurance context where negligent misrepresentation not barred; emphasizes lack of privity and special circumstances)
- Greg Allen Construction Co., Inc. v. Estelle, 798 N.E.2d 171 (Ind. 2003) (agent acting within scope of authority not personally liable in tort for conduct that is essentially contractual)
- Sims v. EGA Products, Inc., 475 F.3d 865 (7th Cir.) (distinguishes entry of default from final default judgment; standard for setting aside default)
- Seely v. White Motor Co., 403 P.2d 145 (Cal. 1965) (classic rationale for economic loss rule: allocating commercial risk via contract)
- Degen v. United States, 517 U.S. 820 (1996) (excessive defaults can be abuse of discretion; courts should consider lesser sanctions)