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HealthBanc International, LLC v. Synergy Worldwide, Inc.

Supreme Court of Utah

December 21, 2018

HealthBanc International, LLC and Bernard Feldman, Plaintiffs and Counterclaim Defendants,
v.
Synergy Worldwide, Inc. and Nature's Sunshine Products, Inc., Defendants and Counterclaim Plaintiffs.

          On Certification from the United States District Court for the District of Utah The Honorable Jill N. Parrish Case No. 2:16-cv-00135

          Mitchell A. Stephens, Salt Lake City, Annabella Q. Bonfa, Scott W. Wellman, Laguna Hills, for plaintiffs and counterclaim defendants

          Chris Martinez, Kimberly Neville, Salt Lake City, for defendants and counterclaim plaintiffs

          Associate Chief Justice Lee authored the opinion of the Court, in which Justice Himonas, Justice Pearce, Justice Petersen, and Judge

          Hagen joined. Having recused himself, Chief Justice Matthew B. Durrant does not participate herein; Court of Appeals Judge Diana Hagen sat.

          OPINION

          LEE, ASSOCIATE CHIEF JUSTICE

         ¶1 This case is before us on certification from the United States District Court for the District of Utah. That court asked us to decide whether the "economic loss rule" in Utah law extends to the tort of fraudulent inducement. This question arises in a case in which the alleged fraudulent inducement overlaps entirely with claims for breach of contract. We therefore reframe the question certified by the federal court. We hold that the economic loss rule applies in the circumstances of this case-there is no fraud exception that applies where the alleged fraudulent inducement arises out of the very grounds alleged as a basis for a breach of contract action. We stop short, however, of resolving the broad question of whether there may ever be a fraudulent inducement exception to the economic loss rule in Utah. We defer that question to a future case in which the facts may warrant it.

         I

         ¶2 The question presented stems from litigation arising under a royalty agreement. HealthBanc International, LLC ("HealthBanc") sold a "Greens Formula" to Synergy Worldwide Inc. ("Synergy") for use in Synergy's multilevel marketing business.[1] In the royalty agreement HealthBanc assigned its rights in the Greens Formula to Synergy and Synergy agreed to pay HealthBanc a royalty. Synergy specifically requested that the royalty agreement include representations and warranties that HealthBanc owned the Greens Formula and associated intellectual property rights. HealthBanc then made the following representation and warranty:

HealthBanc hereby represents and warrants that it is the sole and exclusive owner of the entire rights, title and interest, including without limitation all patent, trademark, copyright and other intellectual property rights, in and to the Greens Formula . . . free and clear of all liens, claims or encumbrances.

         ¶3 The following year HealthBanc sued Synergy for breach of contract. It alleged that Synergy had not paid the required royalty on certain sales. Specifically, HealthBanc asserts that Synergy paid the royalty only on sales in Australia and the United States, and failed to pay the royalty on product sales in other countries.

         ¶4 Synergy filed a counterclaim asserting that HealthBanc did not own the Greens Formula. On that premise Synergy alleges counterclaims sounding in breach of contract and tort. The breach of contract claim alleges that "HealthBanc has breached [the contract], in which HealthBanc 'represents and warrants that it is the sole and exclusive owner'" of the Greens Formula and all associated intellectual property rights. Synergy's tort claim alleges fraudulent inducement on the ground that HealthBanc misrepresented that it "had the exclusive right to use, assign or sell the Specified Greens Formula and its associated intellectual property rights."

         ¶5 HealthBanc filed a Motion to Dismiss and a Motion for Partial Summary Judgment as to Synergy's fraud claim. Synergy responded and the court scheduled oral argument. HealthBanc's motion did not assert that the economic loss rule barred Synergy's fraud claim. But the district court issued a minute entry instructing the parties to "be prepared to address whether this court should certify to the Utah Supreme Court the question of whether Utah['s] economic loss rule applies to a fraudulent inducement claim." ...


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