In these consolidated appeals, plaintiffs 1 appeal as of right from the trial court’s order granting summary disposition for defendants. We reverse and remand to the extent that these cases relate to defendant Corby Energy Services, Inc. (Corby).
FACTS AND PROCEDURE
In June 1999, defendant Corby ruptured a water main while performing underground work on behalf of defendants MCI WorldCom, Inc., MCI WorldCom Communications, Inc., and MCI WorldCom Network Services, Inc. (collectively the MCI defendants). Plaintiffs brought this negligence action, alleging that as a result of the broken water main, they were without running water for several days, they had to boil their drinking water for several days, and the business plaintiffs were forced to close or curtail their operations. Plaintiffs also brought a claim alleging negligence per se based on defendants’ failure to obtain a permit authorizing the excavating work. 2 Defendants moved for summary disposition, arguing that the economic loss doctrine and public policy considerations рrecluded any recovery by plaintiffs because plaintiffs *375 sought purely economic damages. The trial court granted summary disposition for defendants and these appeals followed.
Oral argument in this case was heard in May 2002. On August 2, 2002, the MCI defendants filed a notice of bankruptcy in these consolidated appeals. On August 16, 2002, this Court ordered the administrative closure of the appeals on the ground that further proceedings were stayed by 11 USC 362 becausе of the MCI defendants’ bankruptcy filing. Plaintiffs filed a motion for rehearing of the stay order. This Court granted in part the motion for rehearing, allowing the appeals to proceed only as they relate to defendant Corby.
ANALYSIS
Plaintiffs argue that the trial court erred in granting summary disposition on the basis that the economic loss doctrine barred plaintiffs’ claims. We review de novo a trial court’s decision on a motion for summary disposition.
Spiek v Dep’t of Transportation,
*376
A large majority of jurisdictions in the United States have adopted some form of a judicially created limitation on tort actions that seek to recover economic damages resulting from commercial transactions. This limitation is known as the economic loss doctrine.
Mt Lebanon Personal Care Home, Inc v Hoover Universal, Inc,
Putting aside injury to third parties that arises out of conventional tortious behavior and ignoring personal injury to the buyer, we see no reason why all other liability arising out of defective goods ought not be under Article 2. By hypothesis the parties to these suits negotiate with one another. If the buyer does not protect its own interest adequately, adequate backup protection is given by Article 2 doctrines such as unconscionability in 2-302, restriction of disclaimers under 2-316, and limitation on disclaimer of remedy under 2-719. Courts should be particularly skeptical of business plaintiffs who — having negotiated an elaborate contract or having signed a form when they wish they had not — claim to havе a right in tort whether the tort theory is negligent misrepresentation, strict tort, or negligence. [Id., pp 386-387.]
The Michigan Supreme Court formally adopted the economic loss doctrine in
Neibarger v Universal
*377
Coop, Inc,
“ ‘[w]here a purchaser’s expectations in a sale are frustrated because the product he bought is not working properly, his remedy is said to be in contract alone, for he has suffered only “economic” losses.’ ” This doctrine hinges on a distinction drawn between transactions involving the sale of goods for commercial purposes where economic expectations are protected by commercial and contract law, and those involving the sale of defective products to individual consumers who are injured in a manner which has traditionally been remedied by resort to the law of torts. [Id. at 520-521 (citations omitted).][ 3 ]
If a commercial purchaser were allowed to sue in tort to recover economic loss, the UCC would be rendered meaningless and “ ‘contract law would drown in a sea of tort.’ ”
Id.
at 528, quoting
East River Steamship Corp v Transamerica Delaval Inc,
Since
Neibarger,
the economic loss doctrine in Michigan has been applied in the context of various transactions for goods or products to bar recovery in tort when damages are recoverable under the Uni
*378
form Commercial Code.
Sherman v Sea Ray Boats, Inc,
*379 A factor present in all cases in which Michigan courts have applied the economic loss doctrine is that the parties to the litigation were involved, either directly or indirectly, in a transaction for goods. For example, in Metalux, supra at 402, this Court focused on the parties involved and the nature of the product’s use in concluding that the economic loss doctrine applied. Both parties were “sophisticated commercial entities who had the knowledge and ability to allocate liability in their purchase and sale agreement.” Id. Furthermore, the purchase was for a commercial purpose. Id. This Court concludеd that the economic loss doctrine applied and the plaintiff’s exclusive remedy was provided by the ucc because the consequences of the product’s potential failure were likely to have been contemplated by the parties when they entered into the agreement for the sale. Id.
This Court has declined to apply the economic loss doctrine where the claim emanates from a contract for services. See
Higgins v Lauritzen,
On the basis of
Neibarger
and its progeny, we conclude that parties to a transaction for goods are precluded recovery in tort for economic loss caused by inferior products where: (1) the parties оr others closely related to them had the opportunity to negotiate the terms of the sale of the good or product causing the injury, and (2) their economic expectations can be satisfied by contractual remedies.
Neibarger, supra
at 520-529;
Celotex Corp, supra
at 702-703;
Sullivan Industries, Inc v Double Seal Glass Co, Inc,
Defendant Corby’s only argument in support of applying the economic loss doctrine is that the damages sustained by plaintiffs are purely economic.
7
However, a negligence claim may advance solely on a claim of economic loss. See, e.g.,
Case v Consumers Power Co,
Defendant Corby’s reliance on
Rinaldo’s Constr Corp v Michigan Bell Tel Co,
Likewise, the holding in Rinaldo’s Constr Corp is not directly applicable to this case. That case held that for the purpose of determining whether an alleged failure to perform under a contract supports an action in tort, the threshold inquiry is whether the plaintiff alleges a violation of a legal duty separate and distinct from the contractual obligation. Rinaldo’s Constr Corp, supra at 83-84; see Sherman, supra at 48. Again, in the present case there was no contract *384 between the litigants or entities closely related to them. Further, plaintiffs’ tort claim is not based on the failure to perform a contract. Thus, this Court’s discussion in Rinaldo’s Constr Corp, supra at 84-85, regarding recovery of economic loss in the context of whether a separate, distinct duty arises during the performance of a contract, is not dispositive of this case.
Our conclusion that the economic loss doctrine does not apply in this case is not altered by prior cases in which this Court “expressly rejected the argument that the economic loss doctrine does not apply in thе absence of privity of contract.”
Citizens Ins Co, supra
at 45,
8
citing
Freeman v DEC Intl, Inc,
Thus, while this Court has applied the economic loss doctrine to bar tort claims against parties who were suppliers of components of goods purchased by the plaintiffs, there is no support for applying the doctrine in the absence of a transaction between the parties or others closely related to them, whereby the allocation of risks could be negotiated. Here, there was no transaction between the parties that is used as the basis of plaintiffs’ claims. Accordingly, there is no basis for applying the economic loss doctrine in this case to bar plaintiffs’ tort claim, and we refuse to extend this judge-made doctrine to these circumstances.
*386 We also decline to consider at this time defendant Corby’s alternative argument for dismissal that is based on public policy grounds. According to Corby, plaintiffs’ negligence claim is barred by a policy against “mass tort claims” by potentially thousands of plaintiffs proceeding solely on allegations of economic damages. Corby cites several cases from other jurisdictions in making its public policy argument. Significantly, the trial court in this case did not rule on the Water Main Break Litigation plaintiffs’ motion for class certification. The court determined the issue wаs moot after it ruled that plaintiffs’ claims were barred by the economic loss doctrine. Under these circumstances, Corby’s assertion that this case involves a mass tort claim with the potential for disproportionate economic exposure is speculative. Given that the number of plaintiffs in this case is defined by the pleadings below, we are not inclined to speculate regarding the proper policy in the event a class is certifiеd or the number of plaintiffs is significantly increased. 11
Reversed and remanded. We do not retain jurisdiction.
Notes
In this opinion, “plaintiffs” refers to Quest Diagnostics, Inc., and the Water Main Break Litigation plaintiffs, a purported class of individuals and businesses, including David Shea, Pam Carveth, Kim and Mark Aumann, The lk Off Card Shop, Inc., Pravis Industries, Inc., Cosmetic Dermatology and Vein Centers of North Oakland County, P.C., and all other “individuals, proprietorships, partnerships, corporations and other businesses and legal entities in Michigan that were affected by thе damage to the water main in Auburn Hills in June 1999.” The Water Main Break Litigation plaintiffs brought a motion for class certification, but defendants’ motion for summary disposition was granted before the trial court ruled on the issue of class status.
On appeal, plaintiffs do not specifically challenge the trial court’s dismissal of the claim alleging negligence per se.
The Supreme Court recognized that the term “economic loss” may be a misnomer:
“It would be better tо call it a ‘commercial loss,’ not only because personal injuries and especially property losses are economic losses, too — they destroy values which can be and are monetized — but also, and more important, because tort law is a superfluous and inapt tool for resolving purely commercial disputes. We have a body of law designed for such disputes. It is called contract law. Products liability law has evolved into a specialized branch of tort law for use in cases in which a defective product caused, not the usual commercial loss, but a personal injury to a consumer or bystander.” [Id. at 522, quoting Miller v United States Steel Corp, 902 F2d 573, 574 (CA 7, 1990).]
A majority of jurisdictions limit the economic loss doctrine to those cases in which only the product itself is damaged or the damage is closely related to the use of that product. See, e.g.,
East River Steamship Corp, supra
at 871 (admirality law);
Miller,
n 3
supra
at 574-576 (applying Wisconsin law);
Kershaw Co Bd of Ed v United States Gypsum Co,
302 S C 390, 393;
While a small minority of jurisdictions limit the economic loss doctrine to business purchases, most jurisdictions extend its application to both business and consumer purchases. Mt Lebanon Personal Care Home, Inc, supra at 848.
As noted in
In re Starlink Corn Products Liability Litigation,
We reject plaintiffs’ assertion that they have also alleged personal injury. As stated by the trial court in its opinion granting summary disposition:
[T]he plaintiffs in the Water Main Break file alleged only that “[e]ven after water service is restored, residents and businesses will be forced to boil city water to avoid becoming sick from bacteria and other contaminants which infected the water as a result of Defendants’ damage to the water main.” However, this is not an allegation of an injury. It is only an allegation of what steps may have to be taken to avoid injury. The balance of Plaintiffs’ allegations are not for personal injury or property damage.
In Citizens Ins Co, the builders of a restaurant installed wood trusses and a plywood roof decking that had been treated for flame retardancy with chemicals manufactured by the defendant. Id. at 41-42. A subcontractor had treated the wood materials according to instructions provided by the defendant. Id. at 42. The plaintiff, an insurer holding the subrogated rights of the restaurant owner, alleged that the materials treated with the defendant’s сhemicals deteriorated and collapsed, causing damage to the restaurant. Id. Although there was no privity of contract between the parties, an underlying contract existed between the restaurant owner (the commercial consumer) and the builder of the restaurant, who had hired the subcontractor to treat the roofing materials with the defendant’s chemicals. Id. In the present case, on the other hand, there is no underlying contract thаt governed plaintiffs’ economic expectations.
In Freeman, the plaintiff dairy farmers purchased an electric milking system that had parts manufactured by the defendant. Id. at 35. The plaintiffs sued the defendant after discovering that a decline in milk production was attributable to stray voltage from the milking system. Id. This Court explained that, regardless of privity of contract, the ucc applies when the plaintiff is a commercial buyer suing a manufacturer of goods for еconomic losses. Id. at 38. This Court then held that the plaintiffs’ claims were barred by the ucc statute of limitations. Id. at 38-39. As in Citizens Ins Co, the parties in Freeman were not in privity of contract, but the plaintiffs’ expectations were governed by an underlying contract between the plaintiffs and the seller of the milking system. The parties had the opportunity to negotiate the terms of the purchase and their economic expectations could be satisfied by contractual remedies.
Sullivan is another сase where this Court held that the plaintiffs claims were limited by the UCC where the plaintiffs expectations were governed by a commercial transaction. In Sullivan, one of the defendants, a sealant manufacturer, supplied sealant to the other defendant, a glass part supplier, who, in turn, supplied glass parts to the plaintiff manufacturer for making doors and windows. Sullivan, supra at 336-337. The plaintiff brought claims based on tort and contract against the defendants after thе glass parts turned out to be defective. Id. at 337-338. This Court held that the absence of privity between the sealant manufacturer defendant and the plaintiff did not preclude application of the economic loss doctrine and that the plaintiffs tort claims against the sealant manufacturer defendant were barred. Id. at 344-345. Once again, this Court found the economic loss doctrine to be applicable in a case where privity was not prеsent, but a contract for goods existed, which governed the underlying transaction.
Plaintiffs’ argument regarding tortious ejectment was not preserved for our review because it was not raised and addressed below. Thus, we decline to address it.
Fast Air, Inc v Knight,