Characterization of Claim as One for Economic Loss Precludes Claim for Contribution

Characterization of Claim as One for Economic Loss Precludes Claim for Contribution

      In a recent opinion of the Federal District Court (Judge Simpson), on the basis that the claim for breach of contract implicated the economic loss rule, it was determined that indemnification, which applies between joint tort-feasors, was not available.  Ronald A. Chisholm, Ltd. v. American Cold Storage, Inc., 2013 WL 4042036 (W.D. Ky. Aug. 8, 2013).

      To suggest that this dispute has been hard fought would likely be an understatement.  This is the fifth Memorandum Opinion to be issued by Judge Simpson.  Going back to the first decision (2012 WL 5362306 W.D. Ky. Oct. 31, 2012), Abilene Texas Foods, Inc., the third-party defendant herein, entered into an agreement to purchase meat from Chisholm.  American Cold Storage stored products for both Abilene and Chisholm.  Chisholm had authorized American Cold Storage to give Abilene access to Chisholm’s inventory, or at least some of it.  One aspect of this suit involved a claim by Chisholm against American Cold Storage alleging that the latter has released Chisholm’s inventory to Abilene without permission to do so.  The claims asserted by Chisholm against American Cold Storage were for breach of contract, breach of fiduciary duty of good faith and the covenant of good faith, and breach of a contractual bailment.  In this Memorandum Opinion, Judge Simpson was responding to American Cold Storage’s request for summary judgment requiring that Abilene indemnify it on the basis that it was Abilene’s actions in withdrawing the inventory that exposed American Cold Storage to liability.

      Repeating the rule that contribution and indemnity arise with respect to claims in tort, citing in support thereof Ohio River Pipeline Corp. v. Landrum, 580 S.W.2d 713, 719-20 (Ky. App. 1979), the Court went on to note:

Under Kentucky law, the failure to perform a contractual obligation typically does not give rise to a cause of action in tort.

      There is, however, a narrow exception to this rule based upon the existence of a “independent legal duty,” the Court citing in support thereof Mints v. W.S. Agency, Inc., 226 S.W.3d 833, 836 (Ky. App. 2007).  From there the Court proceeded to review the various counts brought by American Cold Storage against Abilene with a view to determining whether they arise in contract or in tort, and if in the contract did there exist an independent legal duty.

      The Court analyzed each of the counts and determined that each arose in contract without breach of an independent legal duty, and therefore, arising in contract and not tort.  On that basis, the motion seeking indemnification was denied.