Case Notes

The court acknowledged that numerous courts have held that actions under Massachusetts law for breach of implied warranties are the functional equivalent of strict liability in other jurisdictions. On a closer examination, however, it was clear that those courts were referring to claims for breach of the implied warranty of merchantability under Mass. Gen. L. ch. 106, ' 2-314 and ' 2-318, not the implied warranty of fitness for a particular purpose under ' 2-315. Moreover, even for the former claims, the Massachusetts Supreme Judicial Court has distinguished between contract-based and tort-based breach of warranty actions, only the latter of which are the functional equivalent of strict liability. Accordingly, because here the yacht manufacturer's warranty claim was contract-based and the damages it sought were contractual, the claim was not barred by the economic loss doctrine.'

David R. Geiger is with'Foley Hoag LLP

MA Federal Court Holds 'Economic Loss Doctrine' Does Not Bar Claim for Breach of Implied Warranty

In Sharp v. Hylas Yachts, Inc., 2013 WL 4517181 (D. Mass. Aug. 26, 2013), the owner of a luxury yacht sued its manufacturer after the yacht broke down on multiple occasions, requiring significant expense to perform repairs and design modifications to fix the alleged defects. The lawsuit, brought in the United States District Court for the District of Massachusetts, asserted claims for negligence, breach of express and implied warranties, breach of contract and violation of Mass. Gen. L. ch. 93A (the Massachusetts unfair and deceptive practices statute) and sought damages for loss of use, costs of repair and other additional expenses. The suit did not allege any personal injury or damage to property other than the yacht itself.

Thereafter, the manufacturer brought a third-party complaint against the manufacturer of several components used in the yacht's construction, asserting claims for, among other things, indemnification, contribution, breach of contract, breach of the implied warranty of merchantability (the Massachusetts near-equivalent of strict liability) and breach of the implied warranty of fitness for a particular purpose. The component manufacturer moved for summary judgment, arguing that the “economic loss doctrine” barred all tort-based and implied warranty claims as a matter of law and there was insufficient evidence the components it manufactured were defective. After the court ordered the yacht manufacturer to respond regarding the applicability of the economic loss doctrine ' under which purely economic losses are unrecoverable under tort-based theories, including strict liability ' the manufacturer conceded its implied warranty of merchantability claim was barred, but argued its claim for breach of the implied warranty of fitness for a particular purpose was contractual in nature and thus unaffected by the doctrine.

The court acknowledged that numerous courts have held that actions under Massachusetts law for breach of implied warranties are the functional equivalent of strict liability in other jurisdictions. On a closer examination, however, it was clear that those courts were referring to claims for breach of the implied warranty of merchantability under Mass. Gen. L. ch. 106, ' 2-314 and ' 2-318, not the implied warranty of fitness for a particular purpose under ' 2-315. Moreover, even for the former claims, the Massachusetts Supreme Judicial Court has distinguished between contract-based and tort-based breach of warranty actions, only the latter of which are the functional equivalent of strict liability. Accordingly, because here the yacht manufacturer's warranty claim was contract-based and the damages it sought were contractual, the claim was not barred by the economic loss doctrine.'

David R. Geiger is with'Foley Hoag LLP