                                                                                    FILED
                                                                        United States Court of Appeals
                     UNITED STATES COURT OF APPEALS                             Tenth Circuit

                                  TENTH CIRCUIT                              September 6, 2011

                                                                            Elisabeth A. Shumaker
                                                                                Clerk of Court
ACLYS INTERNATIONAL, a Utah
limited liability company,

      Plaintiff - Appellant,                                No. 10-4097
                                                              (D. Utah)
v.                                                  (D.C. No. 2:08-CV-00954-TC)

EQUIFAX, a Georgia corporation,

      Defendant - Appellee.



                               ORDER AND JUDGMENT*


Before O'BRIEN, TYMKOVICH, and GORSUCH, Circuit Judges.


      Aclys International, LLC, appeals from the district court’s order dismissing its suit

against Equifax, Inc., which the court concluded was barred by the economic loss

doctrine, a limitation on damages resulting from breach of contract. Aclys argues the

economic loss doctrine does not apply because there was no contract between it and

Equifax because Equifax owed it an independent duty of care. We affirm




      *
         This order and judgment is an unpublished decision, not binding precedent. 10th
Cir. R. 32.1(A). Citation to unpublished decisions is not prohibited. Fed. R. App. 32.1.
It is appropriate as it relates to law of the case, issue preclusion and claim preclusion.
Unpublished decisions may also be cited for their persuasive value. 10th Cir. R. 32.1(A).
Citation to an order and judgment must be accompanied by an appropriate parenthetical
notation B (unpublished). Id.
                                     I. BACKGROUND

       Aclys hired First Credit Corporation (FCC) to investigate a group of prospective

borrowers (individuals and related entities) to whom Aclys planned to provide purchase-

order financing for high-end merchandise.1 FCC ordered credit reports on the named

borrowers from Equifax as part of the investigation. The credit reports showed a few

minor debts by one of the borrowers had gone to collection but no outstanding

judgments. The reports did not reveal the existence of separate judgments against one of

the borrowers in two different states (one in California for contract fraud in the amount of

$157,840.22 and another in Wisconsin for $236,047.67). The judgments were in place at

the time the report was submitted. Aclys loaned more than $5,000,000 to the borrowers

who defaulted and apparently fled the country. Aclys obtained judgments against the

borrowers and seized their assets but was only able to recover a fraction of its loss. It

sued FCC and obtained what it refers to as an “uncollectible” judgment for the full

amount of the loss caused by FCC’s failure to properly investigate the borrowers.

(Appellant Br. at 11.)

       Aclys filed the instant action against Equifax in Utah State court for negligence

and negligent misrepresentation based on Equifax’s failure to report the two judgments.

Although it had no direct contract with Equifax, Aclys claimed it relied on the report in

deciding to extend credit on which the borrowers later defaulted. Equifax removed the


       1
         The district court dismissed the case under Rule 12(c) of the Federal Rules of
Civil Procedure. Therefore, we must assume the factual allegations are true and set forth
the facts as pled in the complaint. Nelson v. State Farm Mut. Auto. Ins. Co., 419 F.3d
1117, 1119 (10th Cir. 2005).
case to federal court based on diversity jurisdiction and subsequently moved for judgment

on the pleadings, arguing Aclys’ claims were barred by the economic loss rule. The

district court granted the motion.

                                         II. DISCUSSION

       The standard for review of a ruling under Rule 12(c) is de novo. Bixler v. Foster,

596 F.3d 751, 755 n.2 (2010). Application of the economic loss doctrine is a question of

law in Utah, also reviewed de novo.2 Grynberg v. Questar Pipeline Co., 70 P.3d 1, 10

(Utah 2003); Kokins v. Teleflex, Inc., 621 F.3d 1290, 1294 (10th Cir. 2010).

       The economic loss rule serves two purposes. First, it bars recovery of
       economic losses in negligence actions unless the plaintiff can show
       physical damage to other property or bodily injury. Second, the economic
       loss rule prevents parties who have contracted with each other from
       recovering beyond the bargained-for risks. In essence, the economic loss
       rule marks the fundamental boundary between contract law, which protects
       expectancy interests created through agreement between the parties, and
       tort law, which protects individuals and their property from physical harm
       by imposing a duty of reasonable care.

Sunridge Dev. Corp. v. RB & G Eng’g, Inc., 230 P.3d 1000, 1006 (Utah 2010) (citation

and quotations omitted).

       Application of the rule is not limited to cases where there is a direct contract

between the parties. In Davencourt at Pilgrims Landing Homeowners Ass’n v.

Davencourt at Pilgrims Landing, LC, the Utah Supreme Court concluded:

       Exempting strangers to a contract from the economic loss rule would
       convert a contract cause of action into one for tort. For example, although a
       purchaser of a home cannot recover economic losses under a negligence
       claim against a subcontractor, the logic behind the Association’s argument
       would require recovery because the purchaser had no contract or

       2
           Both parties agree that Utah law applies in this diversity action.

                                              -2-
        opportunity to negotiate. Any existing contract action between the
        purchaser and the contractor and the contractor and subcontractor would no
        longer govern if a tort cause of action for negligence were permitted. The
        nature of these relationships does not alter the economic loss rule merely
        because a plaintiff had no contract or opportunity to negotiate a contract. A
        contrary rule would frustrate the economic expectations of the contracting
        parties and undermine the intrinsic differences in contract and negligence
        law.

221 P.3d 234, 243 (Utah 2009).

        [A] party suffering only economic loss from the breach of an express or
        implied contractual duty may not assert a tort claim for such a breach
        absent an independent duty of care under tort law . . . . Therefore, the
        initial inquiry in cases where the line between contract and tort blurs is
        whether a duty exists independent of any contractual obligations between
        the parties. When an independent duty exists, the economic loss rule does
        not bar a tort claim because the claim is based on a recognized independent
        duty of care and thus does not fall within the scope of the rule.

Hermansen v. Tasulis, 48 P.3d 235, 240 (Utah 2002) (quotations omitted).

        Here, the purely economic damages arose from a series of contractual

relationships between Aclys, FCC, and Equifax. While it is undisputed that no direct

contract existed between Aclys and Equifax with regard to the credit report at issue,

Acyls’ negligence action seeks only economic damages. Aclys is barred from recovery

under the economic loss rule unless it can show Equifax owed it an independent duty of

care.

        Aclys argues Equifax had an independent duty under Utah’s law on negligent

misrepresentation and it breached that duty by the “material omission” of the judgments

from the credit report.3 (Appellant Br. at 7.) However, Utah’s negligent


        3
         “[I]n an abundance of caution” Equifax briefed the argument raised by Aclys in
the district court that Equifax had an independent duty of care under the Fair Credit

                                            -3-
misrepresentation law relies on statutory or common law duties of care to impose liability

for failure to disclose material facts.

         Thus, interpreting the elements of the tort in a manner consistent with
         principles of common-law fraud, we have found that in addition to
         affirmative misstatements, an omission may be actionable as a negligent
         misrepresentation where the defendant has a duty to disclose. Sugarhouse
         Fin. Co. v. Anderson, 610 P.2d 1369, 1373 (Utah 1980)
         (“Misrepresentation may be made either by affirmative statement or by
         material omission, where there exists a duty to speak.”); DeBry v. Valley
         Mortgage Co., 835 P.2d 1000, 1008 (Utah Ct. App. 1992) (denying
         liability for an “implied” misrepresentation where the defendant mortgage
         company owed no duty to disclose information to purchasers of real
         property). Thus, a duty to disclose is a necessary element of the tort of
         negligent misrepresentation.

Smith v. Frandsen, 94 P.3d 919, 923 (Utah 2004). Aclys can point to no independent

duty (outside any contractual or quasi-contractual duty arising from Equifax’s agreement

with FCC) imposed on a credit reporting agency under Utah law to disclose the kind of

information omitted from the credit reports at issue. While not expressly stated, its policy

argument – such a duty should be recognized – asks us to impose a new tort duty in

Utah.4


Reporting Act. (Appellee Br. at 15 n.4.) Since Aclys did not pursue the argument on
appeal, it is waived. See Kokins, 621 F.3d at 1302 n.6.
         4
         The parties base much of their argument about whether a duty should be
recognized on the foreseeability of Acyls’ reliance and the direct or indirect nature of the
relationship between the parties. But those points are relevant in the negligent
misrepresentation context only where a duty of disclosure clearly exists and the question
is only to whom the duty is owed. See Hermansen, 48 P.3d at 241 (concluding a real
estate broker has a duty to be honest, ethical and competent with the public and therefore
an independent duty to disclose known facts to a purchaser even if he is retained by the
seller); West v. Inter-Financial, Inc., 139 P.3d 1059, 1065 (Utah App. 2006) (concluding
a real estate appraiser has statutory professional duties akin to those of a real estate agent
and therefore has an independent duty of professional competence in conducting an
appraisal, which extends to third parties who rely on the appraisal).

                                             -4-
       Acyls’ argument fails for two reasons. First, “[a]s a federal court, we are

generally reticent to expand state law without clear guidance from its highest court . . . .”

Taylor v. Phelan, 9 F.3d 882, 887 (10th Cir. 1993). Second, “[t]he question of whether a

duty exists is a question of law and involves the examination of the legal relationships

between the parties, an analysis of the duties created by these relationships, and policy

judgments applied to relationships.” Davencourt at Pilgrims Landing Homeowners

Ass’n, 221 P.3d at 244 (quotations omitted). The duties giving rise to negligent

misrepresentation claims generally arise from professional duties of competence and

fiduciary duties. See, e.g., Hermansen, 48 P.3d at 240-41 (licensed real estate broker has

statutory duty to the public to disclose known facts about a property); Price-Orem Inv.

Co. v. Rollins, Brown, & Gunnell, Inc., 713 P.2d 55, 59 (Utah 1986) (allowing claim for

negligent misrepresentation for faulty survey where engineering firm was bound to

survey and stake property “with that degree of care and skill expected of licensed

surveyors and/or engineers”); Milliner v. Elmer Fox & Co., 529 P.2d 806, 808 (Utah

1974) (acknowledging accountant can be held liable for negligence to client and

reasonably foreseeable third parties in preparing financial statements but declining to

extend the liability to unlimited class of third parties, i.e., purchasers of client’s stock).

Existing Utah law imposes no such professional or fiduciary duty on the part of Equifax

here and Aclys has not presented any compelling policy reason for creating an

independent duty to protect a sophisticated commercial third party from a negligently

prepared credit report, particularly where the omitted information is of public record.

That is especially true when a federal court is asked to make a policy laden choice for the

                                              -5-
State of Utah.

       AFFIRMED.

                   Entered by the Court:

                   Terrence L. O’Brien
                   United States Circuit Judge




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