*1 entities, are limited cense-holding partnerships, companies taxed as §in 465 does at-risk limit
although the al., et
apply to them. See Lipton, Richard 4.07(B) (3d Taxation §
Partnership Abrams,
ed.2012); E. Howard Rules, 6 J. Pass-
Changes to the At-Risk (2003) (“The 37, 44 at-risk
through Entities yet are another of Code Sec. 465
rules partner-
hurdle that must be overcome way to find their deductions are
ship-level return.”). Regardless, partner’s tax
onto properly the Tax held
because Court were never ac- license-holding entities business,
tively conducting trade deductions
required to make amortization rulings deny- § the Tax Court’s expense and amortization
ing the business upheld. must be
deductions Tax is af- Court
firmed. INDIANS BASEBALL
CLEVELAND
COMPANY, L.P., Fourth-Party
Plaintiff-Appellant,
NEW HAMPSHIRE INSURANCE
COMPANY, Defendant-
Appellee, Group, Fourth-
CSI Insurance
Party Defendant-Appellee.
No. 12-1589. Appeals,
United States Court
Sixth Circuit.
Argued: April Aug.
Decided and Filed: *2 Thomas,
ARGUED: Michelle A. Thom- as, P.C., Witenoff, Southfield, DeGrood & Michigan, Collier, Appellant. Trent B. Ulanoff, P.C., I. & Collins, Einhorn, Farrell Southfield, Appellee CSI. Michigan, were involved in a series Four Thomas, A. Thom- Michelle BRIEF: ON to obtain the of transactions inflatable *3 Southfield, Witenoff, P.C., as, DeGrood & coverage on it: slide and the insurance Collier, B. Trent Michigan, Appellant. for Company, Indians Baseball Cleveland Ulanoff, P.C., Einhorn, Collins, Farrell & L.P., LLC, Sports, National Pastime CSI Southfield, Appellee CSI. Michigan, Group Hampshire and New In- Insurance Gerish, Hampshire Insur- Jeffrey New C. ' National Pastime Company. surance Hills, Michigan, Company, Bloomfield ance Sports, appeal, not a entered Insurance. Hampshire New Appellee In- into a contract with Cleveland Company produce Baseball “Kids dians CLAY, MERRITT, Before: Day” Fun before several Cleveland events DONALD, Judges. Circuit during the summer of games Indians' MERRITT, J., opinion entertainment, delivered Na- part 2010. As of the DONALD, court, J., joined. in in- agreed provide tional Pastime CLAY, 643-45), delivered a (pp. J. collapsed. flatable slide that Also ac- separate dissenting opinion. agreement, cordance with National required purchase a com-
Pastime was general liability poli- insurance prehensive OPINION as an cy naming the Cleveland Indians MERRITT, Judge. Circuit named insured. “Production ¶ 4, 2010, at 6. Agreement” an accident oc- dated Jan. diversity In this engaged independent Pastime Day” Fun event before a National curred at a “Kids broker, defendant CSI Insur- game baseball on insurance Cleveland Indians June poli- Group, procure required Douglas Johnson and David See cy. Application, Annual dated attending game specta- Brown were Events page On the first of the looking at an exhibit Mar. They tors. broker, sent to the insurance large Application Zone when a inflata- outside the Kids Ques- heading “Qualification them. Mr. Johnson collapsed ble slide tions,” is checked to indicate This insurance dis- the box days nine later. died will have “bounce houses filed the events pute arises out of lawsuit broker, Id. by inflatables.” Indians and other the Cleveland CSI, provided National Pas- subsequently of Mr. Mr. Brown and the estate Johnson for a from proposal policy with a punitive state court for and time an Ohio Hampshire New Insurance damages. question is defendant compensatory $2,590, which premium for a Company court erred when it whether the district Liability broker, A accepted. “Certificate the insurance de- concluded 27, 2010, April issued on Group, who mistak- Insurance” was fendant Insurance the accident than six weeks before the insurance that more enly failed to obtain accident, insured as “Na- It named the could not occurred. would cover the and the Cer- Sports Pastime LLC” For the reasons that tional negligence. follow, tificate Holder as “Cleveland judgment affirm the favor of undisputed LP.” It is Company Company but Baseball Hampshire New Insurance nor the In- In- National Pastime in favor of that neither reverse the full copy dians had received Group and remand for further surance Mr. the accident that killed at the time of proceedings. Johnson underlies this insurance dis- to defend or indemnify National Pastime pute. or the Cleveland Indians based on the “amusement device” poli- exclusion accident, Shortly after the National Pas- cy. Group, Letter York Services broker, CSI, time contacted the insurance claim Hampshire administrator for New notify it of the It accident. was then Insurance, Aug. dated 2010. National that, that National despite Pastime learned Pastime a complaint against filed specific request application Hampshire seeking a declara- CSI, insurance sent to that CSI had mis- tion that it indemnify defend and takenly procure failed to comprehensive underlying wrongful death *4 liability policy expressly in- covered Hampshire suit.2 New Insurance subse- flatables. an email exchange between quently filed a counterclaim against Na- CSI and National Pastime on June tional third-party Pastime and a complaint 2010, National points out that it against stating the Indians that it was not checked the box on page the cover required indemnify to defend or under the application that inflatables would be used policy. terms of the The Indians then at the event. In response, employee filed a against counterclaim Hamp- New back, “Oh, CSI emailed Sorry, guess ok. I shire declaratory Insurance for a judg- I it. missed I’m so used to quoting up seeking ment coverage under the policy your I hardly events think I any- look a complaint CSI, and filed a against thing but the dates and the details of the insurance procure broker that failed to event.” The next email to National Pas- insurance as requested. goes time say on to that CSI will submit the claim to the carrier Hampshire [New summary CSI moved for judgment on but seems to begin deny any Insurance] the Indians’ claims pertaining to CSI’s fail “however, fault: inflatable’s are ex- procure insurance, [sic] ure to the proper cluded on policy you purchase[d] granted from the district court on November us. Whoever own the inflatable’s are 2011. [sic] The district court “any held that carry [sic] insurance on them and name owed to them [Cleveland Indians] you as Additional Insured’s on then- [sic] CSI must lie in statute or contract” and policy.1 I don’t believe you I’ve ever seen any negligence ruled out claim. Nat'l Pas your indicate on applications that Sports, inflata- time LLC v. Group, CSI Ins. events, ble’s your (E.D.Mich.2011). are at please [sic] but F.Supp.2d note, the exclusion is quotes listed on the district court denied the Indians’ Motion you.” we sent over to See Email exchange for Opinion Order, Reconsideration. between Lori Nelson of CSI Insurance Mar. 2012. Group and Jason Hockman of National Hampshire New Insurance filed a Mo
Pastime, dated June 2010. tion Judgment Pleadings per
The underlying
suit
taining
Johnson and
to the claims to defend and indem
Brown was submitted to
Hampshire
nify
New
brought by National Pastime and the
Insurance, which
denied
responsibility
Indians. The district
granted
court
New
1.
provide
National Pastime was to
complaint,
inflata-
In the same
National Pastime
provide
brought
bles
coverage
against
also
claim
for them
failing
procure
policy
with the cov-
agreement
under its
with the Indians. The
erage requested. That claim was dismissed
record does not indicate who "owns” the
parties' stipulation,
below on the
presumably
inflatables.
due to settlement.
events,
Day”
as well
Indians’
on . the Fun
as the
Insurance’s motion
Hampshire
on a
policy reliance
Certificate
Insurance
finding that the insurance
pleadings,
received
as notice that the re-
in
of-cover
from CSI
unambiguous
its exclusion
was
quested coverage
place.
The Indi-
out of the inflatable
age
injuries arising
Order,
arguments
ans raise two
this
Opinion and
dated
Amended
appeal:
slide.
decision,
granting
In a
the district court erred
sum-
previous
Apr.
mary judgment
Indians’
court that
with the district
agreed
Court
claims of
district
coverage
negligence;
for the inflat
excluded
the.
holding
erred in
that the
did
given
our
court
For
reasons
able slide.3
bring
negligent misrepresen-
v. not
claim of
Sports,
in Nat’l Pastime
LLC
opinion
12-1588,
allowing
amend
tation
in not
them to
Hampshire Ins.
No.
New
that,
complaint
holding
their
and further
the district court'as
affirm the
event,
such a claim would fail on
appeal
to the Cleveland Indians’
properly
merits even if
raised.4
Company.
Hampshire
complaint
final
. The Indians
forth
their
judg-
set
The district
entered
*5
negligence
2012. The
several claims based
various
April
all claims on
ment on
timely
procure
to this Court
theories based on CSI’s failure to
appeal
filed a
Indians
17, 2011,
requested
in the November
the
insurance and the Indians’
error
alleging
Summary Judgment
to
Granting
reliance on the Certificate of Insurance
Order
12, 2012,
CSI,
Denying
CSI,
they
March
Order
which caused
received
17, 2011,
Fun
the November
to
with
“Kids
proceed
Reconsideration
Indians
18, 2012,
Order,
April
Opinion
Day”
they
and
and
under
false belief that
Opinion
Granting
Order
re-
by
they
and
insurance
had
Amended
covered
Company’s
Hampshire'
paid.
New
Insurance
for which
quested and
that,
Judgment
Pleadings.
on the
matter of
Motion
district court found
as a
law;,
care to the
CSI did not owe
II.
(1)
professional re-
Indians because
CSI’s
only;
lationship was
National Pastime
complaint against
filed a
The Indians
broker,
no
contract existed between
Group,
privity
and,
event,
any
and CSI
injury
to
claiming tort
due CSI’s
“sepa-
claims
not
requested
negligence
Indians’
Viere
procure the insurance
failure to
and
from National Pastime’s
for the
rate
distinct”
Sports
Pastime
“Kids
National
Sports/Leisure Ac
pertaining to
Opinion
pursuant
Endorsement
Sixth
3. See Oral
issued
Devices
Activities and
Sports,
LLC v.
tivities/Entertainment
Rule 36 Nat’l Pastime
Circuit
Policy
Hampshire Insurance
New
issued
Hampshire
(Apr.
Ins.
No. 12-1588
(attached
Sports
standard,
Co.
30, 2013). Briefly,
held that the
Complaint
Sports,
v.
Nat’l Pastime
LLC
filed in
liability policy specifi-
general
comprehensive
al.,
Group,
No.
et
2:11-cv-11378
cally excludes "slides:”
1-4,
(E.D.Mich.
2011) (RE
Page
Apr.
filed
exclusion,
purposes of this
"amusement
For
64)
added)).
gen
apply
(emphasis
ID
Courts
any
equipment, a
means
device or
device”
interpreting insur
when
eral contract
rules
including,
enjoyment,
but
person rides
contracts,
unam
so we must construe
to, any
or non-me-
limited
mechanical
not
provisions
policy on
biguous
as written. The
ride, slide,
(including
water slide
chanical
coverage for slides.
its face excludes
tow when used in
ski or
.connection
slide),
grant
or moon
of sum-
appeal
with a water
moonwalk
4. The Indians do not
bounce,
equipment.
bungee operation
mary
on the
claims
to CSI
Indians'
misrepresentation,
fraudulent
device” does not include
innocent
“Amusement
misrepresentation,
silent
game.
and
fraud.
computer
video arcade
claims;5
the Indians can- before
district court’s consideration
contract
Supreme
Michigan
Court
economic
from CSI’s
not recover for
loss
“ ‘separate
clarified that Fultz’s
and dis-
negligence.
analysis”
tinct’ mode of
should be inter-
and we
acknowledges,
The district
preted
contracting party’s
hold
Michigan
is no
case law
agree, that there
assumption
obligations
of contractual
does
bro
directly on the issue of an insurance
extinguish
separately existing
or limit
to an
ker’s
insured.
statutory
common-law or
tort duties owed
Hence,
left to
the Michi
we are
examine
noncontracting
parties in
per-
gan
decide
think the
case law and
what we
Loweke,
of the
formance
contract.
Court would hold in
Supreme
Quoting
at 555.
from the
N.W.2d
Sixth
Tomp
this circumstance. Erie R.R. Co.
Const.,
case Davis v. Venture One
Circuit
kins,
82 L.Ed.
U.S.
S.Ct.
(6th Cir.2009),
Inc.,
568 F.3d
575-76
disagree
We
with the district
Michigan Supreme
Court said that
court and
to the dis
reverse
remand
extinguish
simple
“Fultz did not
idea
negli
trict
court on
Indians’ claims
within
deep
embedded
the Ameri-
gence
negligent misrepresentation
...;
having
can
of torts
one
as-
against CSI.
act,
negligently,
sumed to
does so
then
liability exists as
third party
to a
for fail-
Negligence
ure
defendant to exercise care and
prima
To establish a
facie case of
Loweke,
in the performance
skill
itself.”
law,
(internal quotation
639 73, 461 597 City Berkley, Mich. N.W.2d or omissions. Hill negligent acts party’s consent); Co., 651, (1999)(apparent McAuley v. 517 Sears, Mich. 492 v. Roebuck 513, Loweke, Corp., (2012); 457 Mich. 578 190, Gen. Motors 196-98 (1998) remedies); (damage N.W.2d 285 at N.W.2d 809 v. Sales 454 Mich. Orel Uni-Rak imposed “an courts (1997) (negligence N.W.2d 243 care” exercised duty of to be independent relating to real property). claims services, like by providers professional Here, brokers, parties feasonably it is towards third foreseeable insurance as Indi was foreseeable additional insured such thé the harm where agency knowl ans will harmed an insurance specific the defendant where specific intermediary procure a or other fails to might that its actions harm edge coverage, just primary intended in Polgar, 215 at as party. third N.W.2d See (title abstractor); v. DeBo sured would While it is understanda Mieras be. 156-57 na, ble that not allow the insur should Sand, Nagel virtually to be liable to (attorney); broker held Nat’l Inc. Inc., Const., limitless class of claimants who are total Mich.App. (engineers strangers relationship liable to between the N.W.2d insured, injured party par as and the agency foreseeable insurance contractor ties who were unknown to the insurance preparation of. construction suit, Corp., plans); filing Molecular Tech. 925 broker before this is cf. (“without limiting its hold courts have re F.2d at 915-16 case. group professionals, peatedly held in numerous contexts ing particular fairness, [Polgar including reiterated the well-de considerations ] harm, ability prevent rule that a defendant defendant’s veloped finding permit of care to all those who are the defendant owes owes a injured parties. of care to foreseeable potential class ... that it was persons procuring all of those third CSI knew [and] *7 the as as for National rely knows will on the in Indians well who defendant omitted). ....”) (footnote Pastime, and exactly Fur it knew what dates formation (Second) for, thermore, it that the Torts events the insurance was knew Restatement that paid premium § the the and provides 299A the common under a Certificate of Insurance standing professional to CSI had issued that indicating to the Indians others: aware that the was in effect. CSI was well has he that he represents Unless proper if the Indians could be harmed knowledge, greater or skill one lesser procured. insurance was undertakes to render services who is profession or trade re- practice argues foreseeability that alone CSI also the skill and quired exercise knowl- must enough is not and that there be some by members of edge normally possessed would “special relationship” that profession good standing or trade in Indians in this make CSI liable in similar communities. relationship certainly special case. That undisputed It that CSI Court has followed exists here. Supreme knew the insurance was cover in numerous the Restatement Torts by the cases, Days” hosted it follow this “Kids Fun events believe would games. baseball CSI sent in this Indians before basic tenet the common law case directly to the See, of Insurance e.g., Certificate as well. Ritchie-Gamester 640
Indians, listing setting, them as an additional to keep sional and thus the risk of E. Jeffrey reasonably named insured. See Thomas calculable. Because Mootz, Indians’ Appleman & Francis on the tort claim is based on J. CSI’s (Lib. 2.07[1], ed.2011)(any professional negligence § at 2-84 in a commercial setting, argues between the communication loss economic doctrine bars the claim. agent regarding coverage the insurance harm agent makes the The cases cited procuring coverage). The Certificate proposition that the “economic loss doc lists the dates of the “Kids recovery trine” bars not factually are anal says Days” Fun “Certificate Hold- ogous and do not convince us that er is as added Additional Insured with Michigan Supreme Court would hold that respect to our insured’s [National doctrine bars the Indians’ Sports] negligence.” Immediately below claim this ease. This case does not language, Cleveland Indians Base- products involve liability, implied warran ball Company is named as the “Certificate ties, recovery or economic for some other Liability Holder.” Certificate of Insur- sort good of defective where the damage is ance, April If dated indeed confined to product itself—the type of require some additional where case is most doctrine often in “special relationship” to impose tort liabili- Generally, voked. a negligent defendant is ty CSI, a relationship surely such can for all injuries resulting directly be demonstrated here. wrongful from his damages act if the legal consequences and natural of his district court also concluded might reasonably conduct and have been physical that the lack of injury part on the See, anticipated. e.g., Ensink v. Mecosta recovery the Indians bars tort. Ac Cnty. Hosp., Gen. Mich.App. CSI, cording damages Indians’ ; (2004) N.W.2d GHD Oper., LLC are for an economic loss—the loss insur Prew, Inc., v. Emerson No. proceeds ance the “economic loss —and WL at *5 (Mich.Ct.App. Feb. precludes doctrine” recovery in tort for 2009). Moreover, the underlying wrong type of loss. The term “economic suit ful-death certainly this case most damages loss” refers to solely that are concern physical injury. does The fact monetary, opposed to damages involv presents that the case itself as an insur ing physical harm to person property. dispute veils the fact that the under Broadly speaking, the loss economic doc *8 injuries lying complained of are physical. trine designed to maintain a distinction damage between addition, remedies for breach of based on review our of case contract and for tort. The economic loss jurisdictions, law from other we conclude provides doctrine that certain economic that the economic loss doctrine does not losses are properly only in generally remediable con bar claims for economic losses tract. The doctrine has roots in common- suffered when an insurance broker negli- law recovery limitations on damages See, of in gently procures e.g., insurance. Pitts Bureau, negligence actions in physi the absence of v. Farm Life cal person 91, (Iowa harm to or property. pri 2012); The & n. 4 98 Grynberg v. mary purpose Tech, Inc., 1267, rule is to shield Agri 10 P.3d 1271 & n. 4 (Colo.2000) (en defendant liability banc); from unlimited for all of Steiner Corp. v. the consequences economic negligent of a Higgins, Johnson & F.R.D. 196 656- act, (D.Utah particularly in a or profes- 2000); commercial Deitelbaum, 57 v. Kanter
641 552(2) (Sec- the of Restatement 208 Ill.Dec. Section Ill.App.3d ond) (1995). a professional’s of Torts7 limits liabil- 1137, 1139-40 N.E.2d
ity
negligently supplied information to
one of a limited
of
person
group
“the
Misrepresentation
Negligent
guidance
persons for whose benefit and
he
.they
also
contend that
The Indians
supply
to
the information....”
intends
delivered Certifícate
injured when CSI
requires
Section
determination
the
implied
them that
that
Insurance to
professional
any
had
reason to
whether
was
force. The
requested insurance
party might
relying
a third
be
know that
they
that
relied on
proof
offer
approach pro-
information. This
on the
by
pro-
CSI in
provided
representation
injured
parties,
to
third
protection
vides
Day
Kids Fun
under the
ceeding with the
lia-
avoiding
potentially
while
limitless
had
covered
belief
foreseeability
bility
by
simple
created
The
they specified.
district
the activities
claim,
analysis.
As with
ade-
that the Indians did not
court found
agent
is on whether an insurance
the focus
misrep-
negligent
claim of
plead a
quately
possible injury
to
could
foreseen
event,
and,
any
against CSI
resentation
specific
some
third
and narrows
theory
claims
limits such a
pool.
approach, concepts
Under this
abstractors and accountants.
foreseeability
and reliance are combined
liability.
professional’s
limit the
Rather
negli
of the tort of
elements
any potentially
imposing
than
(1)
misrepresentation are:
the defen
gent
un-
party,
approach
third
misrepresentation;
made a material
dant
essentially requires- a de-
der Section 552
false; (3)
(2)
representation
professional
whether
termination of
making
defendant was
to know that a third party
reason
ie.,
defendant
misrepresentation,
using
the information
wheth-
might
or professional
business
breached
professional
er the
knew
information to
provide
accurate
care
relying on the information.
party would be
him;
plain
employ
those who
foreseeability
a result. Law
element
damages
suffered
tiff
already
casé
been established—
J.
has
Lawrence
Stockier P.C.
Offices
fact,
and,
we turn
Rose,
conceded
CSI—so
Mich.App.
element. The Indians
the reliance
(Second)
(a)
group
person
§
or one of a limited
Restatement
of Torts
7. The
guidance
persons
addressing
negligent misrepresentation,
for whose benefit
supply
the information
he intends
states:
supply
recipient
that the
intends
knows
business,
who,
of his
One
in the course
it; and
employment, or
other
profession or
(b)
upon it in a
through reliance
transac-
pecuniary
which he has a
inter-
transaction in
tion,
information to
that he intends the
est, supplies
guid-
information
false
recipient so
knows
influence or
transactions,
in their business
others
*9
substantially similar trans-
intends or in a
liability
subject
pecuniary
for
loss caused
is
action.
by
justifiable
upon
reliance
them their
to
information,
(3)The
public
liability of one who is
a
he fails to exercise reasonable
if
duty
give
extends to loss
the information
obtaining
competence in
or
care or
communi-
persons
by any
of the class
suffered
cating the information.
created,
duty
any
in
(3),
is
whose benefit
(2) Except
as stated
Subsection
it is intended
the transactions
is
stated
Subsection
limited
protect them.
loss suffered
they
gence
did not receive
docu
claims
CSI
claim
defendant
Insur-
any party
Group.
or
information from
ment
other
policy
indicating that the insurance
did not
CLAY,
Judge, dissenting.
Circuit
slides.
It is undisputed
inflatable
cover
that neither the Indians nor
Pas
disagree
I
majority’s interpre-
with the
yet
copy
had not
received a
of the full
time
tation
Michigan
relevant
tort law as
policy
Hampshire
Insurance
to both the
negligence
negli-
claims of
In the
Company
receipt
CSI.
absence
gent misrepresentation.
I
affirm
by
actual
policy,
of the
reliance
Indians
court,
the decision of
district
and ac-
by
representation
on the
as a
Certificate
I
cordingly,
respectfully dissent.
procured
requested
CSI that CSI had
Negligence
insurance, including
coverage
inflata
bles, was
Operat
reasonable. See GHD
law,
Under
four
there are
ele-
Prew,
Inc.,
ing, LLC v. Emerson
No.
negligence: duty,
ments of
claim for
(Mich.Ct.
278857,
249399,
at *6-7
WL
breach, causation,
damages.
Hill v.
2009) (reliance
3,
App. Feb.
on certificate Sears,
Co.,
Roebuck and
absence of actual
660,
645 plain- the Indians resentation induced behavior misrepresentation,” “innocent they tiff. this claim because succeed on cannot CSI. privity of contract with not have did In this was no sale or there Smith, N.W.2d
Forge v. 458 Mich. 580 misrepresentation; event on that based Fidelity and Guar- (1998); U.S. just the Indians believed that NPS Black, 99, 313 v. anty Co. through the proper obtained Michi- (comparing N.W.2d Furthermore, context of insur- CSI. find- rule with the common gan’s contracts, Michigan courts have contract must exist for ing privity held that a certificate of insurance misrepresentation under claim of innocent represents pur- insurance has been law). not Simply, this claim does chased, no but makes claims as to be- there was ho contract apply where coverage particulars extent of the parties. two tween the See WestAmerican Ins. Co. policy. Co., Mich.App. Meridian Mutual Treating negligent the claim one (1998). still cannot A certifi- misrepresentation, the Indians recovery they cate of insurance does not create are entitled show inaccuracies, id., Michigan courts to warn of It true that therefore CSI. is reli- of contrac- the Indians cannot show reasonable requirement have abolished ance on the document. privity negligent for some claims tual Polgar, Williams v. representation. See negligence, As the claim for 149, 152-53 Mich. liable; it issue here is whether CSI is not Williams, In Su- may very well be liable to NPS for ab- that a real estate preme Court found perform failure to contract. could liable to a third stracter liable, is whom it is issue performed the abstracter’s work was when it had no contract with the Indi- because negligently. But other cases that ans, it them on cannot be liable to either liability have usual- third-party found such theory mis- required form reli- ly some of detrimental representation.' misrepresentations, ance based those purchase property based .Accordingly, such as -forth reasons set See id. While above, an abstracter’s statements. respectfully I dissent. logic correct that
the Indians are
the Williams might totally bar theory that do
the use of situations abstracters, real
not involvé estate because id.,
they party, are why theory should cannot show Williams, two
apply here. there were
key features: an abstract distinguishing be) (and intended to used
can be spe-
anyone, taken and there actions on the information in
cifically reliance words, misrep-
the abstract. In other der, 17, -2011, (Or- 2.). at 9 n. negligent misrepresentation- Nov. as one of