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Nebraska Supreme Court Rules on Damages Required to Prove Crop Loss; Announces Important Decision on Economic Loss Doctrine

A family of central Nebraska farmers sued their herbicide vendor claiming the company applied inappropriate amounts of herbicide, contrary to label instructions, to their soils. They contend this produced a crop loss on fourteen different fields. The farmers produced corn during the relevant year on twenty fields encompassing about 2,000 acres.

The chemical involved, Guardsman Max, as BASF product, was not criticized in the lawsuit. The herbicide worked. But it was applied contrary to label instructions. Soil particle size or coarseness was a key issue and required careful assessment to determine how much of the substance should go on the crop. The product label specifically identifies how factors such as soil texture and percentage of organic matter content in the soil dictate adjusting application rates.

The farmers immediately contacted their vendor, informing them of the problem. They asked for repeated and return visits. The sales company did inspect the crop from time to time, and there was evidence they may have led the farmer to expect an appropriate adjustment at harvest time.

But no adjustment came. Complicated pleadings issues arose just prior to trial when the trial court entered a ruling based on the economic loss doctrine that took the farmers’ negligent application of fertilizer claim out of the case. At that point, the farmers were forced to proceed only with a second breach of warranty theory, though the warranty allegedly breached was about the application process and not the method of application. In addition, as is true of all crop damage cases, proof of damages is very complicated.

The Nebraska Supreme Court’s January 27 decision in Lesiak v. Central Valley Cooperative, 283 Neb 103, ___ NW2d ___ (2012), a nineteen (19)-page Opinion of the Court discloses a high level of understanding about the difficult burden faced by a farmer who seeks to prove crop loss.

First, the Court dealt with the damages issue. It noted that dry land and irrigated land, coarse soils and non-coarse soils, and farms separated by several miles in distance, were involved.

But, the Court noted the record was sufficient because strong documentary evidence was developed, including computer-generated harvest maps, as well as records of actual production. These were sufficient, according to the Supreme Court, to permit the jury to decide the issue of how much damages should be awarded.

The Court also concluded there was sufficient evidence from the University of Nebraska Emeritus Agronomist, Dr. Dale Flowerday, to connect the Guardsman Max and the levels of application selected and used by Central Valley Ag, as the cause of crop injury.

Finally, the Supreme Court dealt with a doctrine of law relating to damages known as the economic loss doctrine. The doctrine was described by the Court as “easy to state but difficult to apply”. It is a judicially created doctrine “that sets forth the circumstances under which a tort action is prohibited if the only damages suffered are economic losses”. The Supreme Court noted the doctrine has been compared to the “ever expanding, all encompassing alien life form portrayed in the 1958 B-movie classic The Blob”. The Supreme Court said that left unchecked the doctrine would “consume much of tort law”. Then the Nebraska Supreme Court proceeded to confront the doctrine.

The Court noted in Nebraska’s adoption of the economic loss doctrine, “the exact contours of the doctrine, particularly outside of the product’s liability context, have not been addressed.” This line in the Supreme Court’s Opinion set the stage for a comprehensive reevaluation of the economic loss doctrine and a definitive statement about when, where, and how it will apply in Nebraska’s future jurisprudence.

Announcing those contours, the Supreme Court stated:

While the doctrine has its place in the law of damages, it should not be interpreted so broadly as to undermine tort law and preclude tort remedies in situations which, historically, have presented viable tort cases. That is to say, the doctrine should not be expanded to allow traditional tort remedies to drown in a sea of contract.

To that end, we are expressly limiting the doctrine’s application…. First, we reaffirm the doctrine’s continued application in the product liability area. As applied in that context, the doctrine requires that where a defective product causes harm only to itself, unaccompanied by either personal injury or damage to other property, contract law provides the exclusive remedy to the plaintiff.…

Second, the doctrine also applies where the alleged breach is only of a contractual duty and no independent tort duty exists.

The Court then dealt with the fact that Nebraska’s contract law includes an accompanying duty to “perform with care, skill, reasonable expediency, and faithfulness the thing agreed to be done”. That duty could be either a breach of tort or breach of contract claim, but the Supreme Court clarified with this major new pronouncement in the law.

“Where only economic loss is suffered and the alleged breach is of only a contractual duty, then the action should be in contract rather than in tort. In other words, the doctrine would apply to bar a tort action for the negligent performance of a contract when only economic losses were incurred. … [t]he doctrine would not bar tort theories [in cases where a tort theory would produce the same outcome as the contract theory] and where the damages are not solely economic or where there existed an independent tort duty alleged to be breached.”

The Supreme Court summarized as follows:

In sum, we conclude that the primary purpose of the economic loss doctrine is to maintain the separateness of tort law and contract law. Generally speaking, the doctrine limits to a party’s ability to recover from economic loss (or commercial losses), unaccompanied by personal injury or damage to other property, allowing recovery only under contract law. But we expressly restrict the doctrine’s application to where economic losses are (1) caused by a defective product or (2) caused by an alleged breach of a contractual duty, where no tort duty exists independent of the contract itself.

The Court concluded the economic loss doctrine, relied upon by the company that sold the herbicide to the Lesiaks, did not bar their claims. This is because the Lesiaks’ commercial expectations were to raise a corn crop with help from the herbicide, not simply to kill weeds. The Court declined to adopt the “disappointed expectations test”.

However, it concluded the “disappointed expectation test” so expands the economic loss doctrine as to preclude tort recovery based upon the mere possibility that the parties could have included a contract term dealing with the occurrence of the damage at issue. The Nebraska Supreme Court brought itself in line with the U.S. Supreme Court’s decision in Saratoga Fishing Co. v. JM Martinac & Co., 520 US 875 (1997) in reaching this result.

The Supreme Court’s very important pronouncement, for people engaged in business in Nebraska and for persons injured by products, marks a major advance in Nebraska jurisprudence.

Domina Law Group pc llo is proud to have contributed to the evolving body of Nebraska’s law by its contributions on behalf of the Lesiaks, the firm’s clients.

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