## Facts

- CERAbio LLC (owned by Phillips Plastics) developed “Apatight,” a tricalcium phosphate bone void filler, obtained FDA approval for use in humans, and held patents on the material and its production process.
- Wright Medical Technology, a seller of medical devices including bone replacement products, sought to expand its biologics portfolio and began negotiations with CERAbio after learning of Apatight in 2001.
- The parties executed an Asset Purchase Agreement (Aug. 5, 2002) under which Wright agreed to pay $3 million for substantially all CERAbio assets, including patents and know-how: $1.5 million at closing and $1.5 million within three days after Wright verified it could produce Apatight (“Verification”).
- CERAbio represented it had an established, repeatable process and that all necessary raw materials were commercially available; CERAbio also agreed to train Wright personnel and assist with three test lots for Verification.
- After closing, Wright discovered a key raw material used in CERAbio’s process was no longer commercially available and asserted the purchased technology was effectively unusable; CERAbio responded that substitutes existed and that Wright stopped short of a workable solution.
- Wright paid the first installment but refused to pay the second, asserting contract breach and asserting fraud and negligence theories tied to alleged misrepresentations and failures related to the sale and performance.

## Issues

1. Whether Tennessee’s economic loss doctrine barred Wright’s tort counterclaims for negligence and fraud where the alleged harm was purely economic and arose from a contractual asset sale.
2. Whether exclusion of certain trial testimony was reversible error because it impaired Wright’s ability to present its defense to CERAbio’s contract claim for the second installment.

## Decision

- The Seventh Circuit affirmed summary judgment for CERAbio on Wright’s tort counterclaims.
- Applying Tennessee law, the court held Wright’s alleged losses were purely economic and concerned the value and performance of what was purchased, placing the dispute within contract, not tort.
- The court concluded Wright’s negligence theories were barred by the economic loss doctrine and its fraud theories did not fit a narrow fraud-in-the-inducement path because the alleged misrepresentations were tied to the contractual bargain.
- The court reversed the contract judgment and remanded because the district court erroneously excluded testimony material to whether CERAbio adequately performed its contractual obligations and whether production obstacles could reasonably be overcome.
- Disposition: affirmed in part, reversed in part, and remanded.

## Legal Principles

- Under Tennessee’s economic loss doctrine, a commercial party generally may not recover in tort for purely economic losses that reflect disappointed contractual expectations in a negotiated transaction.
- Negligence claims that mirror alleged contract nonperformance or seek contract-like damages are barred where the contract governs the parties’ risk allocation.
- Fraud claims escape the economic loss doctrine only where the alleged fraud is independent of, and not interwoven with, the contract; statements about product quality, process feasibility, or performance promised by the agreement are typically treated as contractual matters.
- An evidentiary error warrants reversal if it likely affected the verdict by preventing a party from presenting evidence central to its theory on a material contract issue.

## Conclusion

The court enforced Tennessee’s economic loss doctrine to confine a sophisticated commercial dispute over purchased technology and know-how to contractual remedies, rejecting negligence and contract-linked fraud theories, but ordered further proceedings on the contract claim because exclusion of key testimony may have affected the jury’s determination of contractual performance and payment entitlement.


CERAbio LLC v. Wright Med. Tech., Inc., 410 F.3d 981 (7th Cir. 2005)