The Economic Loss Rule and Mere Breach of Contract Defense and the Texas Deceptive Trade Practices Act

It has long been the law in Texas that an allegation of a mere breach of contract, without more, does not constitute a false, misleading or deceptive act or practice” in violation of the Texas Deceptive Trade Practices – Consumer Protection Act (“DTPA”). Shakeri v. ADT Sec. Servs., Inc., 816 F.3d 283, 295 (5th Cir. 2016) (quoting Ashford Dev. Inc. v. USLife Real Estate Servs. Corp., 661 S.W.2d 933, 935 (Tex. 1983)). In the past few years, the relationship between the mere breach of contract defense and the economic loss rule have been reviewed by the courts. See Salek v. SunTrust Mortgage, Inc., 2018 U.S. District LEXIS 133396 (S..D. TX. August 8, 2018);  BCC Merch. Solutions, Inc. v. Jet Pay, LLC, 129 F. Supp. 3d 440 (N.D. Tx. 2015).

Under Texas law, where the damages claimed are the economic loss to the subject of the contract itself, the remedy is ordinary is one of the contract alone. Kevin M. Ehringer Enters., Inc. v. McData Servs., Corp., 646 F.3d 321, 325 (5th Cir. 2011). In determining whether the economic loss rule precludes particular tort claims, including the DTPA, Texas courts look to the source of the duty allegedly violated and the nature of the loss claimed. El Paso Mktg., L.P. v. Wolf Hollow I, L.P., 383 S.W.3d 138, 143 (Tex. 2012), citing, Sw Bell Tel. Co. v. Delanney, 809 S.W.2d 493, 494-495 (Tex. 1991).

Recently in Salek, the Court was faced with the issue of whether a DTPA unconscionable claim or course of action was exempt and beyond the scope of the “economic loss rule’ under one of the many pending Hurricane Harvey related lawsuits over repairs and the release of insurance related funds.  Defendant SunTrust filed a 12(b)(6) motion to dismiss for failure to state a claim. Plaintiff argued that under Sharyland Water Supply Corp. v. City Alton, 354 S.W.3d 407 (Tex. 2011), that unconscionability claims are exempt from the economic loss rule and therefore, Plaintiff’s DTPA claims could go forward.

Rejecting Plaintiff’s interpretation of Sharyland, the Court noted that courts have allowed recovery of economic damages even absent physical injury or property damage including for statutory causes of action. The Court also noted that the Supreme Court of Texas did not mention a DTPA unconscionable claim in Sharyland and did not overrule or otherwise limit the “mere breach of contract” defense.  Salek v. SunTrust Mortgage, Inc., 2018 U.S. District LEXIS 133396 *16-17 (S..D. TX. August 8, 2018). In reviewing Plaintiff’s claims, and granting the motion to dismiss, the court noted the essence of the claim was that SunTrust breached its promises under the deed of trust concerning the repair and disbursement of insurance proceeds and there was no independent legal duty to do so under Texas law. Therefore, the claims can be asserted in contract only, and not in tort under the DTPA.

The Court’s ruling essentially states that the mere breach of contract defense is the application of the economic loss rule to the DTPA. An allegation of a mere breach of contract does not constitute a false, misleading, or deceptive act in violation of the DTPA. A party raising the economic loss rule needs to look at the nature of the claim and whether there is a duty outside the contract. The opinions in this blog are solely the author’s and any comments, suggestions and replies can be sent to Happy New Year to everyone!




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