                IN THE SUPREME COURT OF IOWA
                              No. 09–0905

                           Filed July 8, 2011


ANNETT HOLDINGS, INC.,

      Appellant,

vs.

KUM & GO, L.C.,

      Appellee.



      Appeal from the Iowa District Court for Polk County, Joel D.

Novak, Judge.



      Annett Holdings, Inc. appeals the district court’s grant of summary

judgment dismissing its negligence and third-party beneficiary contract

claims against Kum & Go, L.C. AFFIRMED.



      Bruce E. Johnson and James M. Ballard of Cutler Law Firm, P.C.,

West Des Moines, for appellant.



      Michael A. Dee and Haley R. Van Loon of Brown, Winick, Graves,

Gross, Baskerville & Schoenebaum, P.L.C., Des Moines, for appellee.
                                       2

MANSFIELD, Justice.

         A dishonest employee of a trucking company put money in his

pocket while claiming to be buying fuel for his fellow employees. This

fraud was perpetrated at a truck stop, where the employee used his

company credit card to obtain cash while reporting purchases of fuel.

The truck stop paid out the cash, accepting the employee’s bogus

explanation that the money was for other employees’ fuel purchases, and

was reimbursed pursuant to its contract with the card issuer. The card

issuer in turn was reimbursed under a separate contract with the

trucking company’s parent. After the fraud had been ongoing for several

years, it was discovered, and the employee was arrested and convicted of

theft.

         The   trucking   company’s   parent   now   seeks   to   reverse   the

contractual flow of dollars by suing the truck stop both for negligence

and as an alleged third-party beneficiary of the contract between the card

issuer and the truck stop.      We agree with the district court that the

economic loss rule bars the negligence claim and that the trucking

company’s parent was not a third-party beneficiary of the contract

between the card issuer and the truck stop. Accordingly, we affirm the

summary judgment granted to the truck stop below.

         I. Background Facts and Proceedings.

         Annett Holdings, Inc. is an Iowa holding company.         One of its

subsidiaries is TMC Transportation, a trucking company that employed

Michael Vititoe as a shag driver at the Clow Valve plant in Oskaloosa.

Vititoe’s duties as a shag driver consisted of moving empty and loaded

semi-tractor trailers within the yard of the Clow Valve plant, facilitating

the loading and unloading of trailers, and facilitating the transportation

of Clow Valve products by other TMC drivers to outside destinations.
                                     3

TMC provided Vititoe a truck along with a Comdata credit card to

purchase fuel for the truck.

      Annett and Comdata had a written agreement.                  Under the

agreement, Comdata provided cards that could be used by authorized

Annett employees to purchase fuel and obtain cash advances at any

Comdata authorized service center locations.     Annett agreed to accept

full responsibility for all purchases made with those cards and also to be

“fully responsible for the unauthorized or fraudulent use thereof until

such time as Comdata has received such notification from [Annett]

provided that each fraud or misuse is not attributed to Comdata.”

Annett also agreed to “hold Comdata harmless from any and all liability

resulting from the acts of any employees or agents of [Annett] which acts

shall include but are not limited to negligent acts of such persons.” A

separate   schedule,   signed   by   both   parties,   clarified    that   the

Annett/Comdata agreement extended to Annett’s TMC subsidiary.

      Comdata in turn had a written contract with Kum & Go, L.C. that

enabled a particular Kum & Go store in Oskaloosa to handle Comdata

transactions. The agreement provided that this Kum & Go service center

would lease a Comdata terminal for $80 per month, which would then be

utilized for Comdata card transactions. Comdata would reimburse Kum

& Go for those transactions after deducting certain fees. The agreement

contained detailed procedures that Kum & Go promised to follow in

processing Comdata transactions. The Comdata/Kum & Go agreement

was governed by Tennessee law.

      From November 2002 to April 2006, while Vititoe was employed by

TMC, he went to the Kum & Go in Oskaloosa on an almost daily basis.

Store personnel allowed Vititoe to operate the Comdata terminal himself.

Vititoe managed to steal money by entering fuel purchases on the
                                     4

Comdata machine and submitting cash advance slips printed out by the

machine to the store clerks—who then paid Vititoe in cash. Kum & Go

personnel wondered why Vititoe was getting cash back while reporting

fuel purchases. He claimed he was doing so because he was a “regional

supervisor” and needed cash to pay for other employees’ fuel purchases

because the other employees did not have cards of their own.

      Vititoe’s Comdata transactions were reported, reviewed, and

validated daily by TMC’s fuel manager. For reasons that are not clear,

the pre-March 2006 fuel manager never noticed (or at least never did

anything about) Vititoe’s suspicious activity. In March 2006, a new fuel

manager took over. Almost immediately, he noticed Vititoe’s pattern of

“buying” fuel every day, even on weekends when he was supposedly not

working and despite the fact Vititoe was only a local shag driver.

      On April 10, 2006, a TMC employee followed Vititoe and observed

him using the Comdata card, but not putting any gas in his truck. The

police were contacted, and they interviewed Vititoe, who admitted he had

stolen money from his employer by misusing the gas card. Vititoe was

arrested and charged with first-degree theft.       He was subsequently

convicted of theft, sentenced to one month incarceration, and ordered to

pay restitution of $298,524.79.

      Annett filed a petition against Kum & Go alleging, among other

theories, negligence and breach of contract for the monetary losses it

suffered through Vititoe’s theft. Annett’s negligence theory asserted that

Kum & Go was negligent in providing cash to Vititoe and that Vititoe did

not have actual or apparent authority to receive cash back on Comdata

transactions. In its breach of contract claim, Annett alleged it was an

intended third-party beneficiary of the contract between Kum & Go and
                                     5

Comdata, and Kum & Go had breached the terms of the contract by

failing to comply with its procedures.

      Kum & Go moved for summary judgment. Kum & Go argued it

could not be liable in negligence due to the “economic loss rule” and

because it owed no duty to Annett. Kum & Go also denied Annett was a

third-party beneficiary of its contract with Comdata.

      The district court granted summary judgment to Kum & Go.             It

found the negligence claim barred by the economic loss rule. It rejected

the breach of contract claim on the ground that Annett was not an

intended beneficiary of the Comdata/Kum & Go contract.                Annett

appeals.

      II. Standard of Review.

      The district court disposed of the case on summary judgment. We

review rulings on summary judgment motions for errors at law. Ranes v.

Adams Labs., Inc., 778 N.W.2d 677, 685 (Iowa 2010). “We examine the

record to determine whether a material fact is in dispute and, if not,

whether the district court properly applied the law.” Id.

      III. Analysis.

      A. Economic Loss Rule. In this case, Annett seeks to recover an

economic loss.    No one was injured; no property was damaged or

destroyed. Rather, Vititoe made unauthorized withdrawals of cash that

were charged to Comdata and ultimately to Annett. Annett now claims

that Kum & Go was negligent in failing to prevent this unauthorized

activity, which resulted, indirectly, in economic losses to Annett.

      Notably, Annett had entered into a contract with the card provider,

Comdata, which in turn had entered into a contract with Kum & Go. In

the   contract   with   Comdata,    Annett   assumed     responsibility   for

unauthorized or fraudulent use of Comdata cards by its own employees.
                                    6

Annett does not dispute that this contract bars it from recovering against

Comdata, but seeks now to recover in tort from the remote party with

which Comdata contracted—Kum & Go.

      We are unaware of a parallel to this claim in our reported case law,

but other appellate courts have recently addressed and rejected similar

claims. In Cumis Insurance Society, Inc. v. BJ’s Wholesale Club, Inc., 918

N.E.2d 36 (Mass. 2009), the Massachusetts Supreme Judicial Court

considered claims brought by credit unions and their insurer against a

retailer (BJ’s) that had improperly stored credit card data in a manner

that allowed thieves to access the data, resulting in fraudulent use of the

credit cards.   The credit unions and their insurer had to absorb the

losses from the fraudulent use, so they sued BJ’s, alleging that its

negligence and its failure to follow the express terms of its own

agreement with its merchant bank had enabled this criminal activity.

Cumis, 918 N.E.2d at 39–40.     The court found the economic loss rule

barred the negligence claims, rejecting the plaintiffs’ attempt to overcome

that rule by arguing that tangible personal property damage (in addition

to economic loss) was involved because the compromised credit cards

had to be replaced and reissued. Id. at 46–47; accord Sovereign Bank v.

BJ’s Wholesale Club, Inc., 533 F.3d 162, 176–77, 179–80 (3d Cir. 2008)

(reaching the same result in a case filed against BJ’s under Pennsylvania

law); see also Azur v. Chase Bank, USA, Nat’l Ass’n, 601 F.3d 212, 213–

14 (3d Cir. 2010) (holding that Pennsylvania law barred a credit card

account holder from suing a bank for negligently allowing the holder’s

personal assistant to misappropriate over $1 million through fraudulent

transactions); In re TJX Cos. Retail Sec. Breach Litig., 564 F.3d 489, 498–

99 (1st Cir. 2009) (applying Massachusetts law); Huggins v. Citibank,

N.A., 585 S.E.2d 275, 276–77 (S.C. 2003) (holding an individual could
                                           7

not bring a negligence claim against credit card issuer for negligently

issuing a card to a person who had stolen the individual’s identity). 1

       As a general proposition, the economic loss rule bars recovery in

negligence when the plaintiff has suffered only economic loss.                    Neb.

Innkeepers, Inc. v. Pittsburgh-Des Moines Corp., 345 N.W.2d 124, 126

(Iowa 1984).      In Nebraska Innkeepers, we acknowledged “[t]he well-

established general rule is that a plaintiff who has suffered only

economic loss due to another’s negligence has not been injured in a

manner which is legally cognizable or compensable.” Id. (citing Robins

Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 309, 48 S. Ct. 134, 135, 72

L. Ed. 290, 292 (1927)).

       Robins, an admiralty decision authored by Justice Holmes, is

perhaps the first noteworthy decision on the economic loss rule, but it is

not the starting-point of the doctrine. See Restatement (Second) of Torts

§ 766C, reporter’s note and cross references through December 1977

(1981), available at http://www.westlaw.com (citing various pre-Robins

cases). As one commentator has said:
              For well over a century, it has been a settled feature of
       American and English tort law that in a variety of situations
       there is no recovery in negligence for pure economic loss,
       that is, for economic loss unrelated to injury to the person or
       the property of the plaintiff.

Peter Benson, The Problem with Pure Economic Loss, 60 S.C. L. Rev. 823,

823 (2009).


       1In In re Hannaford Bros. Co. Customer Data Security Breach Litigation, 613 F.

Supp. 2d 108, 126–28 (D. Me. 2009), a federal district court sitting in Maine ruled that
grocery store customers could sue a grocery store owner for alleged negligence in
handling their electronic payment data. Hannaford rests on a view that the economic
loss doctrine in Maine is limited to situations where an alleged defect in a product
causes damage to the product itself. Id. at 127–28. We believe Hannaford is
inconsistent with Iowa law, since Hannaford recognizes general negligence recovery for
pure economic loss even when parties are in contractual privity.
                                      8

      This rule is partly intended to prevent the “Death of Contract,” see

Grant Gilmore, The Death of Contract (2d ed. 1995), or the tortification of

contract law.   When two parties have a contractual relationship, the

economic loss rule prevents one party from bringing a negligence action

against the other over the first party’s defeated expectations—a subject

matter the parties can be presumed to have allocated between

themselves in their contract. See Determan v. Johnson, 613 N.W.2d 259,

262–63 (Iowa 2000) (claim by home buyer against home sellers); Nelson

v. Todd’s Ltd., 426 N.W.2d 120, 125 (Iowa 1988) (claim by butcher

against manufacturer of a defective meat curing agent); see also Audio

Odyssey, Ltd. v. United States, 373 F.3d 870, 872–73 (8th Cir. 2004)

(applying Iowa law) (claim by borrower against loan guarantor). This is

sometimes referred to as “the contractual economic loss rule.” See Dan

B. Dobbs, An Introduction to Non-Statutory Economic Loss Claims, 48 Ariz.

L. Rev. 713, 723 (2006) [hereinafter Dobbs]. Courts reason that when a

party enters into a contract, that document should control the party’s

rights and duties. Id.

      But the doctrine is by no means limited to the situation where the

plaintiff and the defendant are in direct contractual privity. For example,

in Nebraska Innkeepers, plaintiffs sought recovery from a bridge

contractor for purely economic loss that occurred when the bridge had to

be closed because of the contractor’s negligence. 345 N.W.2d at 128–29.

This is an example of what is sometimes called “the stranger economic

loss rule.”   See Dobbs, 48 Ariz. L. Rev. at 715.        This aspect of the

economic loss rule has several underlying justifications. In a complex

society such as ours, economic reverberations travel quickly and widely,

resulting in potentially limitless liability.   As Professor Dobbs puts it,
                                    9

“Stand-alone economic loss often spreads without limit.” Id. Also, the

rule encourages parties to enter into contracts. Id. at 716–17.

      Another case where this court applied “the stranger economic loss”

rule, although without so describing it, is Anderson Plasterers v.

Meinecke, 543 N.W.2d 612, 613 (Iowa 1996). There, two workers were

injured by a negligent third party. The employer sued the third party for

its economic losses, e.g., loss of the workers’ time and the expense of

hiring replacement workers. We refused to recognize the claim. Id. at

613–14. Likewise, in State ex rel. Miller v. Philip Morris Inc., 577 N.W.2d

401, 406–07 (Iowa 1998), we held the State could not recover certain

economic losses (i.e., Medicaid expenses) it had incurred because of

smoking-related illnesses allegedly caused by the defendant tobacco

companies.

      The economic loss rule is subject to qualifications. For example,

purely economic losses are recoverable in actions asserting claims of

professional negligence against attorneys and accountants. Van Sickle

Constr. Co. v. Wachovia Commercial Mortg., 783 N.W.2d 684, 692 n.5

(Iowa 2010).   Also, negligent misrepresentation claims fall outside the

scope of the economic loss rule. Id. at 694. In addition, when the duty

of care arises out of a principal-agent relationship, economic losses may

be recoverable. Langwith v. Am. Nat’l Gen. Ins. Co., 793 N.W.2d 215, 222

(Iowa 2010).

      We need not attempt to delineate the precise contours of the

economic loss rule in Iowa. For present purposes, it is enough for us to

note that Annett’s cause of action bears a number of characteristics that

bring it within the scope of the economic loss rule. The claim does not

fall under any of the recognized exceptions or qualifications to the

economic loss rule. See id.; Van Sickle Constr. Co., 783 N.W.2d at 692
                                            10

n.5. It is a remote economic loss claim, similar in that respect to the

claims we rejected in Nebraska Innkeepers, Anderson Plasterers, and

Philip Morris, but with the additional twist that this case does not even

involve an initial personal injury or damage to property.

       Also,     although     Annett     did     not   have    a   direct    contractual

relationship with Kum & Go, it had a contract with Comdata which in

turn had contracted with Kum & Go. When parties enter into a chain of

contracts, even if the two parties at issue have not actually entered into

an agreement with each other, courts have applied the “contractual

economic loss rule” to bar tort claims for economic loss, on the theory

that tort law should not supplant a consensual network of contracts.

See Dobbs, 48 Ariz. L. Rev. at 726; Mark P. Gergen, The Ambit of

Negligence Liability for Pure Economic Loss, 48 Ariz. L. Rev. 749, 764–65

(2006) [hereinafter Gergen] (noting that liability has been precluded when

the claimant could have obtained redress for the harm from the actor by

contract with the actor “or through a chain of contracts reaching back to

the actor”). 2

       An illustration of this principle is Richards v. Midland Brick Sales

Co., Inc., 551 N.W.2d 649, 650–52 (Iowa Ct. App. 1996), in which the
court of appeals found that the economic loss rule barred a tort claim by

a homeowner against a brick supplier.                   The homeowner there had

contracted with a builder, which in turn had contracted with the brick

supplier. Richards, 551 N.W.2d at 650. Similarly, in Tomka v. Hoechst

        2Professor Gergen, building on the work of another scholar (Professor Jane

Stapleton), describes two general criteria to determine when an actor is not subject to
negligence liability for pure economic loss: (1) negligence liability would expose an actor
to a risk of indeterminate liability; and (2) other mechanisms (e.g., contract law) exist to
regulate the actor’s unreasonable conduct or to prevent or redress the harm. Gergen,
48 Ariz. L. Rev. at 763–65. In a big picture sense, these two categories resemble
Professor Dobbs’s two categories of “stranger economic loss” and “contractual economic
loss.”
                                     11

Celanese Corp., 528 N.W.2d 103, 106–07 (Iowa 1995), we rejected

economic loss claims by a cattle feeder against a manufacturer of

synthetic growth hormones, even though the feeder had no contract with

the manufacturer, having purchased the hormones through local

veterinarians.

      Here Annett agreed with Comdata that it would be “fully

responsible” for the fraudulent or unauthorized use of credit cards.

Annett knew that Comdata would be entering into agreements with

service centers, that Comdata would be reimbursing service centers for

charges made to the credit cards, and that Comdata would in turn expect

reimbursement from Annett. Also, Annett had the capacity to prevent

fraudulent or unauthorized use by its employee:           Its subsidiary TMC

received a daily report of Vititoe’s transactions, and as soon as a new fuel

manager    took   over,   that   person   noticed   the   suspicious   activity

immediately.     It is difficult to see why a tort remedy is needed here.

Annett contracted to assume certain risks of financial loss and had the

ability to minimize those risks.

      Even a recent critic of some applications of the economic loss rule

concedes the doctrine can be applied when the plaintiff is in a

contractual chain of distribution leading to the defendant. See Vincent

R. Johnson, The Boundary-Line Function of the Economic Loss Rule, 66

Wash. & Lee L. Rev. 523, 556–57 (2009) (“[A] purchaser seeking purely

economic losses should not be permitted to complain, under tort

principles, against anyone in the chain of distribution that the product

bought was not better . . . than what the plaintiff bargained for under the

law of contract. . . . With respect to purely economic loss, it is ordinarily

fair to bind the plaintiff by the terms of the agreement to which the

plaintiff assented.”) The chain of contracts here involved services rather
                                    12

than a product, but that does not compel a different result. Robins itself

concerned two linked service agreements.          In Robins, a group of

individuals had chartered a ship from its owner which in turn contracted

with a dry dock for repair of the ship. When negligent repairs at some

point resulted in damage to the ship and losses to the charterers, they

sued the dry dock. Robins, 275 U.S. at 307, 48 S. Ct. at 134, 72 L. Ed at

292. The U.S. Supreme Court denied relief. Id. at 308–10, 48 S. Ct. at

135–36, 72 L. Ed. at 292–93.      As Justice Holmes explained, “The law

does not spread its protection so far.” Id. at 309, 48 S. Ct. at 135, 72 L.

Ed. at 292.

      We cited Robins with approval in Nebraska Innkeepers.             345

N.W.2d at 126. As noted above, we summarized the rule in broad terms.

Id. We did not confine the economic loss rule to situations where the

defendant was supplying a product. See also Audio Odyssey, 373 F.3d

at 872–73 (applying Iowa’s economic loss rule to a service relationship).

      Additionally, in Determan and Nelson, we announced a series of

factors to be considered in applying the economic loss rule. We focused

on “ ‘the nature of the defect, the type of risk, and the manner in which

the injury arose’ ” as well as “the type of damages that the plaintiff seeks

to recover.” Determan, 613 N.W.2d at 263 (quoting Nelson, 426 N.W.2d

at 124). Those cases involved product defect claims in which there had

been some physical consequences—i.e., a sagging roof in Determan and

spoiled meat in Nelson. It is not clear to us that the Determan/Nelson

factors are relevant when the claim is for negligence resulting only in

financial harm. But in any event, those factors favor the application of

the economic loss rule here. There was no risk of physical harm; there

was no “defect”; and the “injury” (loss of money) occurred gradually and

over a long period of time.
                                           13

       Annett tries to analogize this case to Waukon Auto Supply v.

Farmers & Merchants Savings Bank, 440 N.W.2d 844 (Iowa 1989) and

Phariss v. Eddy, 478 N.W.2d 848 (Iowa Ct. App. 1991), but we find the

comparison unpersuasive.           In those cases, banks that cashed checks

and handed out funds based on forged or unauthorized endorsements

were found liable to the actual payees of those checks.                  However, the

liability in those cases was based on conversion under Article 3 of the

Uniform Commercial Code, not negligence.                Waukon Auto Supply, 440

N.W.2d at 849; Phariss, 478 N.W.2d at 851. If anything, those decisions

provide another justification for the application of the economic loss rule

here. If parties could simply bring negligence claims whenever financial

transactions went awry, there would be little need for the elaborate

payment system rules set forth in Articles 3 and 4 of the U.C.C.

       Lastly, as we noted earlier, this claim resembles tort claims that

have been rejected recently by state and federal appellate courts in

Massachusetts and Pennsylvania. No persuasive reason has been offered

for us to depart from those decisions here in Iowa.                   Accordingly, we

affirm the grant of summary judgment to Kum & Go on Annett’s

negligence claim, and now turn to its third-party beneficiary claim. 3


       3In  our view, it does not advance the analysis to assert that Kum & Go owed an
“independent duty” to Annett to use ordinary care. This rephrases the question, but
does not answer it. We have said “the existence of a duty is a policy decision, based on
the relevant circumstances, that the law should protect a particular person from a
particular type of harm.” Van Essen v. McCormick Enters. Co., 599 N.W.2d 716, 719
(Iowa 1999). The economic loss rule says, in effect, under some circumstances, a party
does not owe a duty to another party to protect it from pure economic losses. Whether
the issue is framed in terms of the economic loss rule or the scope of an actor’s duty, we
still need to make the underlying determination whether tort law affords a potential
remedy.
        At a minimum, before one can claim the existence of an “independent duty”
running from Kum & Go to Annett, it is necessary to identify the source of that duty.
The federal district court decision in Hannaford does not help in that regard. The court
there found a duty based on an implied contract between the grocery store customer
                                          14

       B. Third-Party Beneficiary Claim.                In the alternative, Annett

claims it was a third-party beneficiary of the contract between Comdata

and Kum & Go. That contract had a Tennessee choice-of-law provision.

Both parties therefore agree that Annett’s claim to third-party beneficiary

status is governed by Tennessee law.

       Under Tennessee law, “contracts are presumed to be ‘executed for

the benefit of the parties thereto and not third persons.’ ”                    Owner-

Operator Indep. Drivers Ass’n, Inc. v. Concord EFS, Inc., 59 S.W.3d 63, 68

(Tenn. 2001) (quoting Oman Constr. Co. v. Tenn. Cent. Ry., 370 S.W.2d

563, 572 (Tenn. 1963)). Tennessee follows the general rule that a third

party must be an “intended beneficiary” of a contract to have the right to

enforce it.    Id.   There must be “ ‘the clear intent to have the contract

operate for the benefit of a third party.’ ”           Id. at 68–69 (quoting First

Tenn. Bank Nat’l Ass’n v. Thoroughbred Motor Cars, Inc., 932 S.W.2d 928,

930 (Tenn. Ct. App. 1996)). 4

       In the Owner-Operator case, the Tennessee Supreme Court held

that individual credit card holders were not third-party beneficiaries with

the right to enforce contracts between the card issuers and merchants

prohibiting surcharges on credit card transactions. Id. at 65. We believe
the reasoning of that decision controls here.              Here, as in the Owner-

Operator case, the agreement did not expressly provide that there would

be no third-party beneficiaries, but there was an anti-assignment

provision, which in the Tennessee court’s view tended to weigh against a


__________________________
and the grocery store. 613 F. Supp. 2d at 118–19. There was no contract between
Kum & Go and Annett.
       4Tennessee, like Iowa, follows the third-party beneficiary principles set forth in

the Restatement (Second) of Contracts. See Restatement (Second) of Contracts § 302,
at 439–40 (1981); see also RPC Liquidation v. Iowa Dep’t of Transp., 717 N.W.2d 317,
319–20 (Iowa 2006); Owner-Operator Indep. Drivers Ass’n, 59 S.W.3d at 69–70.
                                    15

finding of third-party beneficiary status.    Id. at 71.   Also, while the

contract between Comdata and Kum & Go imposed detailed processing

requirements on Kum & Go, it did not indicate those requirements were

to benefit Annett; rather, they appear from the contract simply intended

to protect Comdata. Id. at 73 (noting terms of contract made clear card

issuer’s intent was to maximize its own profits, not to confer benefits on

third-party beneficiaries).

      As the district court pointed out, the intent to benefit Comdata

rather than third parties is made manifest by the structure and wording

of the agreement.    Subsections 4(a) and 4(b) set forth the processing

requirements.    Subsection 4(c) then provides that Comdata shall have

the “right to refuse” or (having accepted) to reverse any transaction where

those requirements were not followed.        This stands as an explicit

statement that the intended beneficiary of subsections 4(a) and 4(b) is

Comdata and not anyone else. As the district court explained:
      Such language evinces Comdata’s intent to reserve the right
      to enforce the transaction procedures itself, and as a
      necessary corollary, the right to determine when a service
      center has failed to appropriately follow the transaction
      procedures.     To allow a third party to make its own
      determination as to when a service center has failed to abide
      by the procedures, and to further attempt to enforce said
      procedures in a court of law, would be contrary to the intent
      of the parties under the contract.

We agree with the district court’s views on this matter.

      IV. Conclusion.

      For the reasons stated herein, we affirm the district court’s order

granting summary judgment to Kum & Go.

      AFFIRMED.

      All justices concur except Wiggins and Hecht, JJ., who dissent,

and Appel, J., who takes no part.
                                    16

                        #09–0905, Annett Holdings, Inc. v. Kum & Go, L.C.

WIGGINS, Justice (dissenting).

      I dissent.   While I agree with the majority that Annett Holdings,

Inc. was not a third-party beneficiary, I cannot support the conclusion

that we should bar its claim because of the economic loss rule.         To

understand the basis for my dissent, I believe it is first necessary to

review the development of the economic loss rule in Iowa.

      Iowa appeared to adopt the economic loss rule in Nebraska

Innkeepers, Inc. v. Pittsburgh-Des Moines Corp., 345 N.W.2d 124 (Iowa

1984). There, a group of Nebraska business owners sued Pittsburgh-Des

Moines for purely economic loss due to negligence of Pittsburgh-Des

Moines in the construction of a bridge over the Missouri River connecting

Iowa and Nebraska. Neb. Innkeepers, Inc., 345 N.W.2d at 125–26. After

reviewing cases with similar facts from other jurisdictions, this court

barred the claims of the business owners. Id. at 126–28.

      My review of the cases relied on by this court, when it decided

Nebraska Innkeepers, is that in an action in which a bridge is negligently

damaged, the courts generally relied on the theory that economic

damages resulting from damage to the bridge are too remote to allow a

recovery. See Leadfree Enters., Inc. v. U.S. Steel Corp., 711 F.2d 805, 807

(7th Cir. 1983) (“ ‘[E]ven where the chain of causation is complete and

direct, recovery may sometimes be denied on grounds of public policy

because:   (1) The injury is too remote from the negligence; or (2) the

injury is too wholly out of proportion to the culpability of the negligent

tort-feasor; or (3) in retrospect it appears too highly extraordinary that

the negligence should have brought about the harm; or (4) because

allowance of recovery would place too unreasonable a burden on the

negligent tort-feasor; or (5) because allowance of recovery would be too
                                      17

likely to open the way for fraudulent claims; or (6) allowance of recovery

would enter a field that has no sensible or just stopping point’ ”) (quoting

Hartridge v. State Farm Mut. Auto. Ins. Co., 271 N.W.2d 598, 602 (Wis.

1978)); Petitions of Kinsman Transit Co., 388 F.2d 821, 825 (2d Cir. 1968)

(“Under all the circumstances of this case, we hold that the connection

between the defendants’ negligence and the claimants’ damages is too

tenuous and remote to permit recovery.”); In re Complaint of Marine

Navigation Sulphur Carriers, Inc., 507 F. Supp. 205, 209 (E.D. Va. 1980)

(“Inherent in the concept of proximate or legal cause is the recognized

need to limit the compensability of indirect and remote consequences of

the negligent act.”); Gen. Foods Corp. v. United States, 448 F. Supp. 111,

113 (D. Md. 1978) (“Courts which have addressed this issue have

repeatedly expressed concern that a contrary rule would open the door to

virtually limitless suits, often of a highly speculative and remote

nature.”); Rickards v. Sun Oil Co., 41 A.2d 267, 270 (N.J. Sup. Ct. 1945)

(“It is obvious that the alleged wrong was not the natural and proximate

result of defendant’s negligence, and the defendant is not liable.”).    In

other words, these authorities hold as a matter of law any damages

caused by the defendant’s negligence in damaging the bridge is not the

proximate cause of the plaintiff’s damages. In reality, we did not adopt

the economic loss rule.     We applied the proximate-cause-remoteness

doctrine and called it the economic loss rule.

      A few years later, this court refined its position on pure economic

loss claims. Nelson v. Todd’s Ltd., 426 N.W.2d 120, 122–25 (Iowa 1988).

The court applied the economic loss rule to a product liability case, but

did so using a different rationale.    Id.   The Nelson court quoted with

approval the following analysis suggested by a federal court of appeals in

deciding whether a particular claim is cognizable in tort or contract:
                                    18
      “The line between tort and contract must be drawn by
      analyzing interrelated factors such as the nature of the
      defect, the type of risk, and the manner in which the injury
      arose. These factors bear directly on whether the safety-
      insurance policy of tort law or the expectation-bargain
      protection policy of warranty law is most applicable to a
      particular claim.”

Id. at 124–25 (quoting Pa. Glass Sand Corp. v. Caterpillar Tractor Co., 652
F.2d 1165, 1173 (3d Cir.1981)). Whereafter, our court stated:

            We agree that the line to be drawn is one between tort
      and contract rather than between physical harm and
      economic loss. . . . When, as here, the loss relates to a
      consumer or user’s disappointed expectations due to
      deterioration, internal breakdown or non-accidental cause,
      the remedy lies in contract.

            Tort theory, on the other hand, is generally
      appropriate when the harm is a sudden or dangerous
      occurrence, frequently involving some violence or collision
      with external objects, resulting from a genuine hazard in the
      nature of the product defect.

Nelson, 426 N.W.2d at 125.       Thus, the court abandoned its former

proximate cause rationale in favor of a tort–contract analysis.        This

analysis is particularly fact intensive and the outcome is contingent on

the nature of the claim.

      We reaffirmed the tort–contract analysis in Tomka v. Hoechst

Celanese Corp., 528 N.W.2d 103 (Iowa 1995). The Tomka court found

the damages sustained by the plaintiff clearly fell within contract theory,

not tort theory.   Tomka, 528 N.W.2d at 107.       The Tomka court held,

“ ‘defects of suitability and quality are redressed through contract actions

and safety hazards through tort actions.’ ” Id. (quoting Northridge Co. v.

W.R. Grace & Co., 471 N.W.2d 179, 185 (Wis. 1991)).

      In 1999 this court again applied the tort–contract analysis in a

products liability case.   Am. Fire & Cas. Co. v. Ford Motor Co., 588

N.W.2d 437, 438 (Iowa 1999). In American Fire and Casualty, the court
                                    19

determined the economic loss rule would not preclude a product liability

suit brought by the automobile owner’s insurer, as subrogee, against the

manufacturer seeking recovery for the loss of an automobile when the

automobile spontaneously caught fire. Id. at 439–40. This court held

the manner in which the injury occurred sounded more like a tort action

than a contract action; therefore, the economic loss rule would not bar

recovery by the insurer. Id.

      In 2000 this court utilized the tort–contract analysis to determine

that a purchaser of a home could not recover on a negligence theory

against the seller for purely economic loss. Determan v. Johnson, 613

N.W.2d 259, 264 (Iowa 2000). In making this determination, the court

applied the factors enumerated in Nelson. Id. at 263. The court looked

at the nature of the defect, the type of risk, and manner in which the

injury arose. Id. Relying on the nature of the claim the court reasoned

the “plaintiff’s claim is based on her unfulfilled expectations with respect

to the quality of the home she purchased. Accordingly, her remedy lies

in contract law, not tort law.”   Id.    Thus, the court found the action

sought the benefit of the bargain rather than a tort remedy. Id. at 264.

      Most recently, in 2010, this court revisited the economic loss rule

and held the rule did not preclude a buyer’s tort claim of negligent

misrepresentation.    Van Sickle Constr. Co. v. Wachovia Commercial

Mortg., Inc., 783 N.W.2d 684, 693 (Iowa 2010).        Here too, the court

reached its conclusion by examining the nature of the claim. Id. The

court reaffirmed the purpose behind the rule—“to prevent litigant with

contract claims from litigating them inappropriately as tort claims.” Id.

      In addition to product liability claims that result from sudden and

dangerous injuries and claims based on negligent misrepresentation, this

court has not applied the economic loss rule in cases of professional
                                       20

negligence.      This court has allowed clients to sue their attorney for

negligence and collect purely economic loss despite the economic loss

rule.    See Crookham v. Riley, 584 N.W.2d 258, 265–66 (Iowa 1998);

Pickens, Barnes & Abernathy v. Heasley, 328 N.W.2d 524, 526–27 (Iowa

1983).    The same is true for suits against accountants.           See Kemin

Indus., Inc. v. KPMG Peat Marwick LLP, 578 N.W.2d 212, 221 (Iowa 1998).

        Robins Dry Dock & Repair Co. v. Flint, 275 U.S. 303, 48 S. Ct. 134,

72 L. Ed. 290 (1927), is widely regarded as the landmark decision in this

area.    After Robins, courts have applied the economic loss rule in a

variety of cases using multiple rationales and justifications.               Peter

Benson, The Problem with Pure Economic Loss, 60 S.C. L. Rev. 823, 823–

38 (2009) [hereinafter Benson]. At the very core of the rule is the idea

that it serves as a boundary line between two areas of law—contract law,

which    rests    on   a   bargained-for    obligation   between   limited    and

immediately identifiable parties, versus tort law, grounded in legal

obligations imposed on the greater population generally. In most cases,

one of these two areas of the law will allow an aggrieved party a cause of

action. In some circumstances, however, neither will. This circumstance

gives us the opportunity to design a framework under which exceptions

to the economic loss rule may be considered.

        The common thread running through all our prior cases is that we

apply the economic loss rule in a mechanical fashion. We look at the

facts and the nature of the lawsuit to determine if the plaintiff is

attempting to litigate a contract claim as a tort claim. Van Sickle Constr.

Co., 783 N.W.2d at 693.         In making this determination, we consider

whether the plaintiff suffered an injury, or was merely disappointed in

his or her expectation. In the event a party suffered only economic loss,

we may allow a claim but not before further inquiry.               This inquiry
                                   21

requires us to determine if the economic loss sustained was sudden and

dangerous as in American Fire & Casualty or simply an unfulfilled

expectation as in Determan.

      As far back as 1958, courts have contemplated circumstances that

give rise to exceptions to the economic loss rule. Biakanja v. Irving, 320

P.2d 16, 18–19 (Cal. 1958). In Biakanja a notary public negligently failed

to have a will property executed resulting in a pure economic loss to the

plaintiff. Id. at 17. Because of the closeness of the defendant’s conduct

and the injury suffered, the court reasoned that it was fair and just to

allow the plaintiff to recover damages. Id. at 19. The primary focus of

the court was the “end and aim” of the transaction. Id. at 18–19.

      In 1979 the California Supreme Court revisited the exception to

the economic loss rule. J’Aire Corp. v. Gregory, 598 P.2d 60, 61 (Cal.

1979). Here, the court allowed recovery of pure economic damages when

a restaurant owner suffered losses due to the negligence of a contractor

performing work on a building the restaurant owner was leasing. Id. at

66. As in Biakanja, the court reasoned that the special relationship of

the parties created an independent duty on the part of the defendant to

perform the work diligently and with consideration to the tenants. Id. at

63–65.

      In People Express Airlines, Inc. v. Consolidated Rail Corporation,

495 A.2d 107 (N.J. 1985), the plaintiff’s airline terminal was forced to

shut down when ethylene oxide escaped from a tank car necessitating

evacuation of the surrounding area.     People Express Airlines, Inc., 495

A.2d at 108. Without any property damage or physical injury, the court

allowed People Express to recover its pure economic loss.     Id. at 109,

118. The court reasoned that pure economic losses should not be borne

by innocent victims. Id. at 111.
                                         22

       Commentators       have    also   opined     that   a   strict   mechanical

application of the economic loss rule may not be possible and that

exceptions to the rule are necessary. See generally Benson, 60 S.C. L.

Rev. at 823–38; Herbert Bernstein, Civil Liability for Pure Economic Loss

Under American Tort Law, 46 Am. J. Comp. L. 111, 126–31 (1998). After

first adopting and applying the economic loss rule, this court has also

acknowledged there may be circumstances giving rise to a cause of

action for purely economic loss arising from an independent duty outside

the world of contract law and beyond tort law. I believe the economic

loss rule should remain generally, with exceptions based upon the

nature of the action. 5 This case presents one of those exceptions.

       In examining the cause of action in the present case, it is clear to

me that Annett Holdings is not trying to circumvent a contract claim by

bringing a tort claim. Allowing the claim against Kum & Go to proceed

will not result in a flood of litigation, speculative damages, or thwart any

of the other rationales commonly asserted in association with the

economic loss rule. I reach this conclusion for a number of reasons.

       First, Annett could not bring a contract claim against Kum & Go.

Annett did not have any contractual relationship with Kum & Go.
Therefore, there is not a contractual remedy available to Annett to

redress this alleged wrong. Moreover, without a contractual relationship,

Annett was unable to allocate the risk of loss if Kum & Go was negligent

in its processing of the purchases. As one commenter pointed out:

       With respect to the boundary-line function of the economic
       loss rule, decisions holding that third-party claims are not
       foreclosed by the rule make sense. If there is no agreement

        5It should be noted that many foreign common law jurisdictions have

substantially revised, or have done away with, similar doctrines. See generally Karen
Hogg, Negligence and Economic Loss in England, Australia, Canada, and New Zealand,
43, Int’l & Comp. L.Q. 116 (1994).
                                     23
      between the parties to a lawsuit, there is no risk that
      recognizing tort obligations will violate the parties’ freedom to
      contract, because there never was an effort to exercise such
      freedom. If the parties are not in privity, contract law does
      not potentially afford a remedy, except in the relatively rare
      case of a third-party beneficiary. Thus, respect for contract
      principles and private ordering does not require that the
      economic loss rule bar the claims of persons not standing in
      a contractual relationship. The purpose of the economic loss
      rule is not to leave injured persons remediless for economic
      losses but to ensure respect for private ordering by relegating
      a plaintiff to contract remedies in cases where there is an
      agreement between the parties allocating economic risks. If
      there is no contract between the parties to litigation, there is
      no boundary-line function to be performed by the economic
      loss rule.

Vincent R. Johnson, The Boundary-Line Function of the Economic Loss

Rule, 66 Wash. & Lee L. Rev. 523, 555 (2009) (footnotes omitted).

      Courts in Minnesota and Colorado have agreed with this rationale.

See Russo v. NCS Pearson, Inc., 462 F. Supp. 2d 981, 1001 (D. Minn.

2006) (“[I]t strikes the Court as unfair to hold . . ., as a matter of law,

that Plaintiffs lack a tort remedy because the alleged tort arose in the

context of the performance of a contract to which they were strangers.”);

A.C. Excavating v. Yacht Club II Homeowners Ass’n, 114 P.3d 862, 870

(Colo. 2005) (“[S]ubcontractors [had] assumed contractual obligations

with the developer and general contractor[;] these obligations did not and

could not relieve the subcontractors of their independent duty to act

without negligence in constructing the development.”).

      Second, Kum & Go actions did not accompany the sale or creation

of a product. Kum & Go was providing a service just as an attorney or

an accountant does for their client. In performing this service, Kum &

Go had an independent duty to use ordinary care in the processing of the

purchases made with the Annett’s credit card. In re Hannaford Bros. Co.

Customer Data Sec. Breach Litig., 613 F. Supp. 2d 108, 119 (D. Me.

2009).   Negligence means failure to use ordinary care.          Mescher v.
                                    24

Brogan, 223 Iowa 573, 574, 272 N.W. 645, 646 (1937). Ordinary care is

the care which a reasonably careful person would use under similar

circumstances.     Id.   Therefore, negligence is “doing something a

reasonably careful person would not do under similar circumstances, or

failing to do something a reasonably careful person would do under

similar circumstances.” Bartlett v. Chebuhar, 479 N.W.2d 321, 322 (Iowa

1992) (quoting 1 Iowa Civil Jury Instructions 700.2 (1987)). Annet had

expectation that Kum & Go would process these transactions in a

nonnegligent manner.

      In the summary judgment record there is a genuine issue of

material fact as to whether Kum & Go was negligent in the processing of

the credit card transactions. The breach of the duty to use ordinary care

in the processing of the purchases made with Annett’s credit cards is

independent of any contractual duty.     In Iowa, courts recognized that

under some circumstances, a breach of a contractual duty may give rise

to an independent action in tort. Preferred Mktg. Assocs. Co. v. Hawkeye

Nat’l Life Ins. Co., 452 N.W.2d 389, 397 (Iowa 1990).            It seems

incongruous to me that this court will allow independent tort actions in

situations where a breach of a contractual duty gives rise to an

independent tort, but will not allow such an action where an

independent duty exists and there is no contract between the parties.

      Finally, if you examine the basis of the claim, Annett is not making

a claim for an injury to a product. Annett is claiming that Kum & Go

was negligent in the processing of the credit card transactions. Kum &

Go had a duty independent of a statute to operate and oversee the use of

the credit cards. Historically, our cases involving the economic loss rule

focus on a fact situation where the defendant sells a product that fails to

perform as expected. See Determan, 613 N.W.2d at 260 (involving the
                                       25

sale of a home); Am. Fire & Cas. Co., 588 N.W.2d at 438 (involving the

sale of a vehicle); Tomka, 528 N.W.2d at 105 (involving the sale of

veterinarian drug products); Nelson, 426 N.W.2d at 121 (involving the

sale of a meat-curing product).       Obviously, Annett’s claims arise from

transactions that were vastly different from those presented in our prior

cases.        The facts of this case are akin to a legal or accounting

malpractice case.

         This distinction was recognized by a federal district court in Maine

when it held under Maine law the economic loss rule will not be extended

to a situation where a merchant failed to use ordinary care in processing

a credit card transaction.      In re Hannaford Bros., 613 F. Supp. 2d at

127–28.       There, the plaintiffs alleged a grocery store failed to exercise

ordinary care in processing a credit card transaction, causing the

cardholder to suffer purely economic loss. Id. at 115–16. The facts of In

re Hannaford Bros. are similar to the facts of this case.

         The court reviewed Maine law and determined the Maine courts

established the economic loss rule to prevent a purchaser from receiving

expectation damages in connection with the purchase of a product. Id.

at 127–28. In Maine, these types of damages are better left to be litigated

under express and implied warranty theories. Id. Our court used this

same rationale when it applied the economic loss rule in Determan,

Tomka, and Nelson. The court also used this rationale when it rejected

the economic loss rule in American Fire and Casualty. Annett’s action in

this case does not involve the sale of a product or expectation damages;

therefore, there is no logical reason to apply the economic loss rule in

this case.

         In   summary,    I   would   not   apply   the   economic   loss   rule

mechanically. I would look at the nature of the action, the breach of the
                                       26

duty alleged, and the damages sought before I would allow the economic

loss rule to bar a claim. I agree the economic loss rule should preclude

recovery when the parties are in privity with the attendant opportunity to

allocate the risk of loss, and no independent duty is established, because

any damages incurred could have been covered by an agreement

negotiated between the parties. It makes no sense to hold parties not in

privity to the same standard, where a duty to process credit card

transactions in a reasonable manner exists. The purpose of the rule is to

prevent contract claims from being litigated as tort claims. There are no

contract claims available to Annett under the facts of this case. Hence,

the purpose of the economic loss rule is not frustrated by applying it

under these narrow facts.      Accordingly, I would reverse the district

court’s order granting Kum & Go’s motion for summary judgment.

      Hecht, J., joins this dissent.
