## Facts

- Annett Holdings, Inc. (parent of TMC Transportation) provided employee Michael Vititoe a truck and a Comdata fuel card for work-related fuel purchases.
- Annett had a written contract with Comdata making Annett responsible for purchases and for unauthorized or fraudulent card use until notice to Comdata (absent Comdata fault), and requiring Annett to hold Comdata harmless for losses caused by Annett’s employees.
- Comdata separately contracted with Kum & Go, L.C. to provide a card terminal and to reimburse Kum & Go for Comdata transactions processed at the terminal; Annett had no contract with Kum & Go.
- From November 2002 to April 2006, Vititoe repeatedly obtained cash at a Kum & Go store by running transactions on the Comdata terminal that were falsely represented as fuel purchases.
- Kum & Go paid Vititoe cash and was reimbursed by Comdata; Comdata was reimbursed by Annett under the Annett–Comdata agreement.
- Annett received daily transaction reports reflecting the transactions but later discovered the scheme; Vititoe was convicted of theft.
- Annett sued Kum & Go to recover the sums Annett had paid to Comdata, asserting negligence and breach of the Comdata–Kum & Go contract as an alleged intended third-party beneficiary.

## Issues

1. Whether the economic loss rule bars Annett’s negligence claim seeking only monetary loss arising from a network of contracts, absent an independent tort duty owed by Kum & Go to Annett.
2. Whether Annett was an intended third-party beneficiary of the Comdata–Kum & Go contract with standing to sue Kum & Go for breach.

## Decision

- The Iowa Supreme Court affirmed summary judgment for Kum & Go on both claims.
- The court held the economic loss rule barred Annett’s negligence claim because the loss was purely economic and the risk allocation was governed by contract, with no independent tort duty running from Kum & Go to Annett.
- The court held Annett was not an intended third-party beneficiary of the Comdata–Kum & Go contract; any benefit to Annett from card acceptance at Kum & Go was incidental.

## Legal Principles

- In Iowa, the economic loss rule generally precludes negligence recovery for purely economic loss tied to disappointed commercial expectations when the parties’ rights, obligations, and risk allocation are defined by contract.
- A plaintiff may not use tort claims to reassign losses within a commercial contracting structure when the plaintiff has contractually assumed the relevant risk (including employee misuse or fraud involving a payment card).
- A tort duty for economic loss will not be imposed absent a duty independent of the contractual relationships at issue.
- Under Iowa third-party beneficiary doctrine, a nonparty may enforce a contract only if the contract shows an intent to confer a direct benefit on that nonparty; incidental benefits do not create enforceable rights.

## Conclusion

The court enforced the contractual allocation of fraud risk in the card-processing arrangement, barring Annett’s attempt to recover purely economic losses from the merchant in negligence and rejecting Annett’s effort to sue as a third-party beneficiary of the merchant–processor contract.


Annett Holdings, Inc. v. Kum & Go, L.C., 801 N.W.2d 499 (Iowa 2011)