HealthBanc International, LLC and Bernard Feldman, Plaintiffs and Counterclaim Defendants,
Synergy Worldwide, Inc. and Nature's Sunshine Products, Inc., Defendants and Counterclaim Plaintiffs.
Certification from the United States District Court for the
District of Utah The Honorable Jill N. Parrish Case No.
Mitchell A. Stephens, Salt Lake City, Annabella Q. Bonfa,
Scott W. Wellman, Laguna Hills, for plaintiffs and
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
joined. Having recused himself, Chief Justice Matthew B.
Durrant does not participate herein; Court of Appeals Judge
Diana Hagen sat.
ASSOCIATE CHIEF JUSTICE
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.
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. 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
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.
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."
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