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Rockport Pharmacy, Inc. v. Digital Simplistics, Inc., 53 F.3d 195 (8th Cir 1995) (full-text).
Factual Background Edit
Defendant, Digital Simplistics, Inc. (Digital), designs and markets various computer hardware and software to retail pharmacies. Plaintiff, Rockport Pharmacy, Inc. (Rockport), operates as a retail pharmacy.
In 1985, Digital contracted to provide Rockport with a customized computer system, including computer hardware and software. The parties also entered into a maintenance agreement. Rockport purchased the computer system to maintain pharmaceutical records, screen for drug interaction problems, label prescriptions, and process insurance claims. Sometime after purchasing the computer system, Rockport began experiencing problems in operating the system. After attempts at correcting those problems proved unsuccessful, Rockport terminated the maintenance agreement and discontinued receiving further software updates from Digital.
Trial Court Proceedings Edit
In 1989, Rockport filed a six-count complaint against Digital, but only the breach of contract and negligence claims were submitted to the jury. Digital moved for judgment as a matter of law at the close of Rockport's case and at the close of all the evidence. These motions were denied. The jury found for Digital on the contract claim, but in favor of Rockport on the negligence claim and awarded damages of $56,000. Digital then filed a post-trial motion for judgment as a matter of law or, alternatively, for a new trial on the negligence claim. The trial court also denied that motion and entered judgment against Digital.
In the trial court, Digital contends that it owed no duty in tort to Rockport arising out of a breach of contract and that Missouri law precludes tort liability in those cases in which the plaintiff seeks recovery solely for economic losses.
The trial court first rejected Digital's claim that it owed no duty to Rockport. Without considering the nature of Rockport's injury, the trial court determined that under Missouri law, Digital owed Rockport a duty to, among other things, use that degree of care that an ordinary person would use in designing and maintaining a customized computer system. The trial court then found that the duty of care and economic loss issues were separate, although interrelated, concepts. The trial court held that because Digital did not raise the economic loss issue in its pre-verdict motion, it had waived this part of the argument. As a result, the trial court concluded that the only issue preserved for consideration was whether Digital owed Rockport a duty of care that was independent of the parties' contractual relationship. Having already found that Digital owed such a duty, the trial court denied Digital's motion.
Appellate Court Proceedings Edit
Digital appealed the trial court’s ruling and argues that the trial court erred in denying its motion for judgment as a matter of law. The appellate court reviewed the denial of the motion de novo, applying the same standard employed by the trial court.
The court held that the trial court erred in its application of Federal Rules of Civil Procedure Rule 50 to the facts of this case. Although the economic loss ground advanced in Digital's post-trial motion may have been somewhat different from the duty-of-care ground advanced in the pre-verdict motion, those grounds were inextricably intertwined. Under Missouri law, in any negligence action, the plaintiff must first establish that a duty exists by the defendant to protect the plaintiff from the injury suffered. The mere existence of a contract does not give rise to a duty in tort. Similarly, there is no duty to exercise reasonable care to protect against a loss that is purely economic in nature. Consequently, in determining whether a breach of contract may give rise to tort liability, the nature of the alleged injury is an essential factor that must be considered.
The substance of Rockport's negligence claim is to recover the losses arising out of Digital's alleged breach of contract. Thus, the nature of Rockport's alleged injury is an essential factor in determining whether Digital can be considered to have owed Rockport a duty of reasonable care. The trial court did not consider the nature of Rockport's injury in answering the duty question. Instead, it relied in part on expert testimony given at trial. The existence of a duty, however, cannot be established by expert opinion of proper procedure. Given that the nature of an alleged injury arising from a breach of contract is necessarily included within the duty question, the appellate court concluded that the economic loss argument was adequately raised by Digital's duty-of-care argument. The nature of the claimed injury is a necessary element in answering the question whether Digital owed Rockport a duty of care that was independent of the parties' contractual relationship. Therefore, it was held that Digital's economic loss argument was properly before the appellate court.
Here, the only damages Rockport alleged in its complaint were the original cost of the computer system, including maintenance and replacement expenses. These constitute economic losses not recoverable on a negligence theory.
Despite the damages alleged in its complaint, Rockport now argued that the economic loss doctrine does not present a bar to its negligence claim because the evidence at trial established that there was damage to property other than the property sold. Specifically, Rockport contends that it sustained a loss of data installed in the computer system. The appellate court concluded that such losses represent nothing more than commercial loss for inadequate value and consequent loss of profits. Thus, the appellate court rejected Rockport's argument that it has sustained damages to other property.
Rockport next argues that the economic loss doctrine does not apply in an action based on the negligent rendition of services by a professional. That exception, however, has only been applied to negligence claims involving defendants who have been held to a professional, rather than an ordinary, standard of care and who have provided professional services to the plaintiff. Rockport does not allege that Digital violated any professional standard of care. Moreover, the contract between Rockport and Digital was not primarily for services, but rather for the sale of goods. The fact that the parties entered into a maintenance agreement as part of that sale does not transform Rockport's claim into a cause of action for the negligent performance of professional services.
The appellate court reversed the judgment of the trial court and remanded the case to the trial court with directions to enter judgment in favor of Digital on the negligence count.