Vol. 78, No. 5, May 2005

The Future of the Economic Loss Doctrine in Wisconsin

by R. Thomas Cane & Sheila Sullivan

n Nov. 9, 2004, the Wisconsin Supreme Court unanimously held in Insurance Co. of North America v. Cease Electric Inc. that "the economic loss doctrine does not apply to contracts for services."¹ Neither of the primary justifications for the doctrine, the court explained, supported the doctrine's extension to service contracts.² The court said that because the Uniform Commercial Code (U.C.C.) does not apply to service contracts, the legislative scheme embodied in the code would not be "upset" by recognizing tort remedies in such cases. The court also concluded that tort law provides a greater incentive than does contract law to guard against negligent conduct in the provision of services. The court ended its opinion in Cease with the observation that applying the doctrine to service contracts could implicate lawsuits against professionals, which traditionally lie in both tort and contract. A bright line rule would thus, the court determined, limit the uncertainty and increased litigation that would accompany any other result.

One of the riskiest forms of gambling is attempting to predict the future course of the law from a single court decision. Evidence suggests, however, that Cease may only be the beginning of a concerted effort to rethink the economic loss doctrine. Before Ceasewas decided, the court had already agreed to hear cases dealing with the other-property and fraud-in-the-inducement exceptions to the doctrine.³ In December, the court turned this trio of cases into a four-of-a-kind by accepting Linden v. Cascade Stone Co.,which implicates, among other things, the integrated systems test for economic loss.⁴ Equally important for a possible change in course, the appointment of Justice Diane Sykes to the federal bench removes the court's most ardent exponent of expanding the reach of the economic loss doctrine. Given what appears to be a collective agreement that the time is right to address economic loss, the question is thus whether the Wisconsin Supreme Court is ready to articulate "an economic loss doctrine rule with a well-defined and logical reach."⁵

Cane

Sullivan

The Hon. R. Thomas Cane, Marquette 1964, is chief judge for the Wisconsin Court of Appeals.

Sheila Sullivan, U.W. 2004 magna cum laude, Order of the Coif, is law clerk for Judge Cane.

The Origins of the Economic Loss Doctrine

The economic loss doctrine is, in its purest form, a judicially created doctrine that bars commercial purchasers of goods from recovering solely economic losses from manufacturers under tort theory. The first formulations of the doctrine reflect its origins as an intended limit to the products liability torts of negligence and strict liability.

A National Response to the Emergence of Products Liability. While products liability law grew out of a policy judgment that people needed "more protection from dangerous products than is afforded by the law of warranty,"⁶ the economic loss doctrine's initial formulations reflect the related fear that the legislative scheme embodied in the U.C.C. would be undone if parties were allowed to recover for purely economic losses caused by defective products. This fear gave rise to the quasi-apocalyptic vision of contract law "drown[ing] in a sea of tort," which has become the mantra of those dedicated to expanding the doctrine of economic loss.⁷

The New Jersey Supreme Court was the first court to consider whether the availability of tort claims would allow parties to circumvent U.C.C. rights and remedies. In 1965, that court held in Santor v. A. & M. Karaghensianthat the U.C.C. did not provide the exclusive remedies available for cases arising out of commercial transactions; if the product was defective, the buyer could bring an action under either strict products liability law or the U.C.C. warranty and contract provisions.⁸

The second court to address the issue came to a different conclusion. In Seeley v. White Motor Co., the California Supreme Court produced what became both the classic formulation of, and the most influential policy justification for, the economic loss doctrine.⁹ The court observed that the doctrine of strict liability in tort was designed not to undermine the U.C.C. but rather to compensate for its inadequacies. The distinction between tort recovery for physical injury and warranty recovery for economic loss did not rest on the "luck" of one plaintiff in having an accident that caused injury while another suffered only damage to a product. The distinction was one of principle and policy. Society has decided that a buyer should not bear the risk that a product will cause physical injury, but the buyer should bear the risk that the "product will not match his economic expectations."¹⁰

In the decades that followed, it became clear that California's approach to economic loss reflected the prevailing wisdom of a generation of jurists. The debate embodied in Santor and Seeley remains significant, however, because it reveals how much the long history of tort law's development dictated the judicial response.¹¹ Against the backdrop of an evolution some saw as too rapid or too extreme, it was logical that courts would eventually seek a point of equilibrium, a rule that would stabilize the relationship between tort law and contract law.

Legal historians disagree over whether the economic loss doctrine achieved that end in its early years.¹² By the late 1980s, in the wake of the U.S. Supreme Court's first recognition of the doctrine, however, application of the doctrine began to expand in a way that, for some critics at least, now threatens to drown tort in a sea of contract.¹³

In 1986, in East River S.S. Corp. v. Transamerica Delaval Inc., the U.S. Supreme Court held that the economic loss doctrine barred tort claims when "a defective product purchased in a commercial transaction malfunctions, injuring only the product itself."¹⁴ East River rejected both the Santor court's choice of remedies and the Santor court's efforts to distinguish between "disappointed" and "endangered" users of defective products. The Court embraced Seeley, but reformulated the policy arguments on which it depended, expanding on the relation between general theories of contract, the parties' freedom to allocate risk, and tort constraints on that freedom. Rather than focusing on links to the U.C.C., East River thus relied on an abstract and ahistorical characterization of the distinction between tort law and contract law, a characterization that has, over time, made it easier to apply economic loss concepts in ways not contemplated by Seeley.

Wisconsin Recognizes the Economic Loss Doctrine. Two years after East River, the Wisconsin Supreme Court in Sunnyslope Grading Inc. v. Miller, Bradford & Risberg Inc. made the doctrine of economic loss part of Wisconsin law.¹⁵ The buyer in the case, Sunnyslope, was a contractor that purchased defective backhoes from Hein-Werner. Although Hein-Werner eventually repaired the backhoes, Sunnyslope sued to recover for replacement parts, labor, down-time investments, and lost profits. Because the warranty explicitly excluded such damages, Sunnyslope brought the action in tort. Sunnyslope thus embodied the core fear that animated Seeley, that a sophisticated party would attempt to circumvent a contract that allocated risk by resorting to tort law.

Rather than depending on the broad principles formulated in East River, however, the Sunnyslope court looked to the U.C.C. for an authoritative statement of the rules that "govern a transaction between two commercial parties of relatively equal bargaining power."¹⁶ The court accepted that the duty to provide a product that functioned to certain expectations was contractual, citing a Seventh Circuit decision¹⁷ and East River as persuasive authority for its conclusion. But any broader link between the doctrine and general policy was restricted to the context of summarizing those nonbinding federal authorities. The court also limited its application of the economic loss doctrine to cases involving warranties. Under that limited formulation, the Sunnyslope court did not decide whether the doctrine applied to parties not in privity, whether it would apply to inherently dangerous products, and what constituted damage to the product as distinguished from damage to other property.

Over time, the Wisconsin Supreme Court has answered these questions. But in the pattern that reflects a broader national one, the development of the state law has until now been lead - and sometimes apparently driven - by federal court predictions of how state courts will decide.¹⁸

Sunnyslope's Unanswered Questions. Privity. Mirroring Seventh Circuit predictions,¹⁹ the Wisconsin Supreme Court held in 1998 in Daanen & Janssen v. Cedarapids Inc. that a remote commercial purchaser was barred from recovering purely economic losses under strict liability and negligence theories.²⁰ The Daanen court characterized its resolution of the privity question as a logical extension of Sunnyslope. However, the court's analysis did not reflect Sunnyslope principles.

The Daanen court instead adopted East River's characterization of the goals of the economic loss doctrine: 1) to maintain the distinct functions of tort law and contract law; 2) to protect commercial parties' freedom to allocate economic risk by contract; and 3) to encourage the commercial purchaser, which is the party best suited to assess the risk of economic loss, to assume, allocate, or insure against that risk. In that context, the court insisted, requiring privity would blur the distinction between tort and contract, which is a distinction determined by the type of loss alleged. Although the court recognized that remote purchasers did not actually negotiate directly for anything, it determined that application of the doctrine supported the manufacturer's ability to limit liability through warranties. The courtconcluded that remote commercial purchasers were as well suited as anyone to protect against the risks caused by disappointing products.

Daanen's dependence on policy formulations untethered to the U.C.C., and the decision's rather alarmist rhetoric, mark a significant shift from Sunnyslope. More substantively, dismissal of privity remakes the idea of face-to-face negotiation that once stood at the heart of contract law. In this new consumerist model, remote buyers "negotiate" by choosing to pay more - and receiving a warranty with few disclaimers - or pay less - and receiving little or no protection against potential defects.

Consumer Transactions. Given Daanen's expansive logic, the supreme court's decision in State Farm Mutual Insurance Co. v. Ford Motor Co. to apply the doctrine of economic loss to consumer transactions was not surprising.²¹ In State Farm,the consumer transaction was a vehicle sale, and the product that caused harm only to itself was a Ford Bronco that burned up while it was parked because of a defect common to Broncos manufactured in the 1980s.

Writing for the majority, Justice William Bablitch used Daanen's three-policy justification to structure his analysis. Focusing on the loss alleged, the court displayed no discomfort with describing a product dangerous enough to require a general recall as a product that failed to meet its "purchaser's expectations;" "[w]hether a product meets a certain level of performance ... is not a matter of societal interest. Rather the specific functions of a product are a matter of contract."²² The court also determined, contrary to Sunnyslope, that "relative bargaining power is not the touchstone of the economic loss rule, nor even an element."²³ The court finally concluded that even when a product was sold "as is" the consumer was the best party to allocate risk.

Justices Shirley Abrahamson and Ann Bradley, who had joined the Daanen majority,begin what was to become a pattern of dissents in economic loss cases, arguing that the doctrine should not apply to products that posed "an unreasonable risk of harm to persons and property."²⁴ A manufacturer's liability should not rest on the fortuitous circumstance of a defective product not actually causing injury. Nor should fortuity alter the policy decision that manufacturers can best prevent dangerously defective products from injuring society.

Although State Farm suggested that economic loss principles would be consistently applied to consumer transactions, the majority did not "reach the issue of the preclusion of a strict liability claim where the parties are of unequal bargaining power, the product is a necessity, no alternative source for the product is readily available, and the purchaser cannot reasonably insure against consequential damages."²⁵ State Farm thus did not foreclose the possibility of the development of a meaningful exception to the doctrine for certain classes of consumer transactions.

Dangerous Products. In Northridge Co. v. W.R. Grace Co., the supreme court considered a commercial transaction involving a different kind of dangerous product, asbestos.²⁶ The defendant was a seller of asbestos-based fireproofing material that the plaintiff, Northridge, had installed in its shopping center.

The supreme court found that Northridge's claim that the product contaminated the building was an allegation "that a defect in the product caused physical harm to property ... other than the product itself."²⁷ The court accepted the argument that the fireproofing material had not failed to perform the function for which it was purchased: it protected against fire. Despite its effectiveness as a commercial product, however, the court concluded that the fireproofing material had harmed the building by causing an unreasonable risk to health and safety.That harm was not visible, and the damages claimed were typical of those associated with economic loss.The court nevertheless determined that asbestos defects implicated safety, not suitability, and therefore were best addressed through tort law, not contract law.

In 1999 the supreme court revisited Northridge when it was asked in Wausau Tile Inc. v. County Concrete Corp. to "determine the nature, extent and scope of the public policy exception to the economic loss doctrine."²⁸ The problematic product in Wausau Tile was a concrete that caused pavers (concrete blocks manufactured for commercial use) to crack and curl.

Employing Daanen's tripartite policy framework, the court first held that the economic loss doctrine barred Wausau Tile's claims. It then rejected any Northridge exception. The cases were different, the majority concluded, because the defects alleged were different. In Wausau Tile, the cement was unsuited for use in pavers; in Northridge, the asbestos was unreasonably dangerous but performed adequately as fireproofing. But while the court found in Wausau Tile that there was no "broad public safety exception" to the doctrine of economic loss, it did not determine how narrow that exception was, concluding simply that "the facts of this case do not involve asbestos or any other material which is inherently dangerous to the health and safety of humans."²⁹ It is thus unclear whether the doctrine bars claims relating to products such as lead-based paint, which share important qualities with asbestos.

Damage to Other Property. The last issue left unanswered by Sunnyslope was under what circumstances damage to "other property" would be held to have occurred, thereby taking the claim outside the scope of economic loss. East River decided that damage caused to a turbine by a disintegrating ring was not damage to "other property" because the turbine was sold as an "integrated package."³⁰ That same year the Seventh Circuit adopted the logic of East River, holding that when a complex machine caused damage to itself, there was no damage to "other property."³¹

Four years later, the Wisconsin Court of Appeals came to a similar conclusion in Midwhey Powder Co. v. Clayton Indus.³² Midwhey belonged to a cooperative that installed an on-site energy production system. After installation, the steam generator produced poor quality steam that damaged the generator and the turbines attached to it. Midwhey argued that the damage done to the turbines authorized a tort claim for economic loss. Drawing on East River and federal predictions, the court disagreed: "a steam generator and a turbine may in other circumstances be sufficiently functionally distinct to be regarded as a separate property ... [but] when each is a component of a single system integrally connected ... as part of an apparatus designed to produce electricity," turbines cease to be separate property.³³ What determines integral relation and component status, the court implied, was the product purchased by the buyer. In 1999 the Wisconsin Supreme Court acknowledged the integrated system rule, but the court has not provided any direct guidance on how that rule might be limited.³⁴

To complicate matters further, the U.S. Supreme Court has rejected a definition of the "product itself" that would have expanded "tort damage immunity beyond that set" by previous precedent.³⁵ In Saratoga Fishing Co. v. J.M. Martinac & Co., the Court held that while a ship was the product itself when it left the initial seller's hands, equipment added by that buyer and passed on with the ship to another buyer did not become part of the "product." Although the Saratoga Fishing majority claimed the implications of its decision were limited, Justice Scalia's dissent identified the larger question raised by the opinion: whether courts should look to the product purchased by the plaintiff or the product sold by the defendant.³⁶ Saratoga Fishing's resolution of that question suggested a resistance to definitions of "other property" that destroyed traditional tort claims.

The New Battle Ground: Exceptions for Intentional Torts? The most hotly contested economic loss doctrine question today is whether the doctrine bars claims based on intentional torts such as fraud in the inducement. Resolution of the question also has implications for the continued survival of common-law tort claims. In the familiar pattern of federal courts initiating new applications of the doctrine, the Seventh Circuit answered this question first, finding no basis for treating intentional misrepresentation claims differently than other misrepresentation claims when applying the doctrine of economic loss.³⁷

In the same year, inRaytheon Co. v. McGraw-Edison Co., the Eastern District of Wisconsin predicted that Wisconsin state courts would recognize a limited exception, based on Huron Tool,³⁸ to the doctrine for fraud in the inducement when the tort was not entwined with the subject of the contract.³⁹ Rejecting policy arguments about the social costs of fraud, Raytheon concluded that the risk of intentional deceit could be addressed with a "simple warranty."⁴⁰ Another Eastern District court disagreed.⁴¹ Stressing this state's history of recognizing distinctions between intentional and negligent misrepresentation, the court predicted in Budgetel that if Wisconsin courts applied the doctrine to intentional torts at all, they would provide an exception for fraud in the inducement broader than Huron.

A year later, the Wisconsin Court of Appeals took up the question.⁴² Douglas-Hanson Co. v. BF Goodrich Co. focused on an allegedly intentional misrepresentation by B.F. Goodrich - that it had a commercially viable product it could deliver for processing - that induced Douglas-Hanson to buy and retrofit an electron beam processor. When Goodrich's product failed to materialize, Douglas-Hanson sued, alleging, among other claims, intentional misrepresentation.

The court of appeals assumed that any potential claims were "interwoven" with the contract, but the court nevertheless concluded that the economic loss doctrine did not bar intentional misrepresentation claims when those misrepresentations fraudulently induced entry into a contract. According to Douglas-Hanson, Wisconsin's long recognition that parties need a background of truth and fair dealing in commercial relationships made such misrepresentations a special situation by undermining the innocent party's ability to negotiate.

After agreeing to review Douglas-Hanson in 2000, the supreme court issued a per curiam statement that "the court is equally divided on the question of whether the public decision of the court of appeals ... should be affirmed."⁴³ Douglas-Hanson was thus affirmed without the binding authority of supreme court precedent. That left the Seventh Circuit free, in Home Valu, to predict again that Wisconsin would choose a narrow Huron Tool-style exception,⁴⁴ setting up a paradoxical situation in which federal fraud in the inducement cases would be decided by one version of Wisconsin law and state cases by another.

In 2003, the Wisconsin Supreme Court appeared to fulfill Seventh Circuit predictions, holding in Digicorp Inc. v. Ameritech Corp. that "Wisconsin recognizes a narrow fraud in the inducement exception ... such as the one adopted in Huron Tool."⁴⁵ The court was so divided, however, that it was difficult to know what Digicorp really meant:

"A majority of this court, Justices Crooks, Prosser and Sykes, rejects the broad exception ... adopted in Douglas-Hanson. However, because Justice Sykes would not adopt any fraud exception, there is also a majority of this court, Justices Bradley, Bablitch and Sykes, that rejects the narrow exception ... adopted by ... Huron Tool ... Two Justices, Bradley and Bablitch, dissent stating that the Douglas-Hanson exception should apply. A majority holds that a fraud in the inducement exception to the economic loss doctrine exists, but there is an even split as to what the fraud in the inducement exception entails. While four Justices agree that there should be an exception, only two Justices, Crooks and Prosser, agree that the Huron Tool exception should be adopted."⁴⁶

The supreme court returned to the fraud in the inducement question in 2004. In an opinion authored by Justice Sykes, the Tietsworth v. Harley- Davidson Motor Co. majority made it clear that Digicorp "did not produce the necessary agreement for an element-specific fraud-in-the-inducement tort cause of action as an exception to the economic loss doctrine." However, the court did not announce a new rule.⁴⁷ As Chief Justice Abrahamson observed, determining the "scope of the fraud in the inducement exception" was thus left "for another day."⁴⁸

The Future of the Doctrine

Cease's doctrinal pronouncements appear to reject the path laid out by expansive federal predictions.⁴⁹ Like Sunnyslope, Cease recognizes the existence of U.C.C. rights and remedies as "one of the critical rationales underlying the economic loss doctrine."⁵⁰ Perhaps as important, Cease subjects the Daanen policies to the lens of realism, rejecting any assumption of prenegotiated liability based on general contract theory because it flies "in the face of the reality of routine service contract relationships."⁵¹ Cease thus abandons the abstract justifications of East River in favor of a rationale embodied in Seeley and Sunnyslope and grounded in the U.C.C.

The court's treatment of real estate, another non-U.C.C. area, reflects a similar concern about extending the economic loss doctrine outside the traditional U.C.C. world. The Wisconsin Court of Appeals applied the doctrine to real estate in Mose v. Tedco Equities, barring a plaintiff who knowingly purchased contaminated land from bringing a tort action against the seller.⁵² In 2002 the court of appeals extended the doctrine to all real estate contracts.⁵³

The supreme court recently agreed, in Van Lare v. Vogt Inc., that economic loss principles barred claims based on strict liability misrepresentation in the context of commercial real estate transactions.⁵⁴ But Van Lare constrained the applicability it recognized. "[W]e do not decide today whether the broader conceptualization of the economic loss doctrine in Tietsworth covers all real estate transactions."⁵⁵ A situation governed by "a written, bargained-for contract for the sale of commercial-use land between two sophisticated parties represented by counsel in the negotiation process" was, the court observed, "tailor made for the application of traditional contract law."⁵⁶

Although the Van Lare court found no exception for strict liability misrepresentation in commercial cases, it cited, without comment, the certification memorandum's suggestion that "strict liability misrepresentation may well apply in situations where the parties are not in equal bargaining positions or the purchaser may not be in the best position to assess the risk of economic loss - two assumptions upon which the economic loss doctrine rests."⁵⁷ This reference strengthens the impression that Van Lare applies only to parties who inhabit the model U.C.C. world.

Together Cease and Van Lare suggest a court poised to rethink the recent evolution of the economic loss doctrine. The Florida Supreme Court, in a similar mood, characterized that evolution as one that had gone too far: "[u]nfortunately, our subsequent holdings have appeared to expand the rule beyond its principled origins and have contributed to applications of the rule ... to situations well beyond our original intent."⁵⁸ To the extent that Cease re-roots the doctrine of economic loss in the policy soil of Sunnyslope - and the U.C.C. - the decision signals a return to the doctrine's principled origins.

Whether that return will provide the foundation for a doctrine with a "well-defined and logical reach" depends, however, on the holdings in Kaloti,⁵⁹ Grams, and Linden. Kaloti may determine whether Wisconsin will retain traditional causes of action for fraudulent inducement or embrace a regime in which protection against intentional deceit is a private matter, to be addressed by contract or price. Grams, in which the plaintiffs seek damages for injuries to calves caused by a defective milk replacer, and Linden, in which improperly applied stucco siding damaged a new house, may decide whether a fixed line between damage to the product and damage to other property can be established. The opinions in those cases might also tell us whether an "integrated system" comprehends not just manufactured goods, but corporately produced products, such as homes, and natural products, like land itself.⁶⁰ Clear answers to those questions will create greater certainty for potential litigants. Answers based on a common and coherent policy rationale could help reestablish state court control over the development of Wisconsin's economic loss doctrine.

Endnotes

¹2004 WI 139, ¶ 2, 276 Wis. 2d 361, 688 N.W.2d 462.

²Id. ¶¶ 36, 40-41.

³See, e.g., Grams v. Milk Prods. Inc., No. 03-0801 (Wis. Ct. App. June 17, 2004). See also www.wicourts.gov, WI App. Cert. No. 03-1225, Kaloti Enter's v. Kellogg Sales (May 12, 2004).

⁴See Linden v. Cascade Stone Co., 2004 WI App 184,276 Wis. 2d 267, 687 N.W.2d 823.

⁵Rich Prod. Corp. v. Kemutec Inc., 66 F. Supp. 2d 937, 970 (E.D. Wis. 1999).

⁶East River S.S. Corp. v. Transamerica Delaval Inc., 476 U.S. 858, 866 (1986).

⁷Id. at 866 (citing Grant Gilmore, The Death of Contract 87-94 (1974)).

⁸Santor v. A. & M. Karagheusian, 207 A.2d 305 (N.J. 1965). The defective product in this case was a rug, and the plaintiff was an ordinary consumer. The court's support for a choice-of-remedies policy was thus articulated in the context of consumer transactions. Santor stressed the average consumer's lack of knowledge and opportunity to determine whether goods purchased were defective. Id. at 311-12.

⁹Seeley v. White Motor Co., 403 P.2d 145 (Cal. 1965). The defective product was a truck, but the context also was a consumer transaction. In rejecting the Santor position, the court explicitly rejected the idea that the law of warranty should be "limited to parties in a somewhat equal bargaining position." Id. at 151. The Seeley concurrence, flatly rejecting the notion that the history of products liability law compels "a dichotomy between `economic loss' and other types of damage," argues cogently for not extending the doctrine of economic loss beyond commercial transactions based solely on the nature of the damages alleged. Id. at 154.

¹⁰Id. at 151.

¹¹See Eileen Silverstein, On Recovery in Tort for Pure Economic Loss, 32 U. Mich. J.L. Reform 403, 409-12 (Spring 1999).

¹²Compare Christopher Scott D'Angelo, The Economic Loss Doctrine: Saving Contract Warranty Law from Drowning in a Sea of Torts, 26 U. Tol. L. Rev. 591, 593-95 (Spring 1995), and Silverstein, supra n.11, at 409-12.

¹³See, e.g., R. Joseph Barton, Drowning in a Sea of Contract: Application of the Economic Loss Rule to Fraud and Negligent Misrepresentation Claims, 41 Wm. & Mary L. Rev. 1789, 1843 (May 2000).

¹⁴476 U.S. at 859. Unlike Santor and Seeley, East River addresses the problem of economic loss in the context of a classic commercial transaction between parties who have the knowledge and power to allocate risks.

¹⁵Sunnyslope Grading Inc. v. Miller, Bradford & Risberg Inc., 148 Wis. 2d 910, 921, 437 N.W.2d 213 (1989).

¹⁶Id. at 916.

¹⁷See, e.g., Wisconsin Power & Light Co. v. Westinghouse Elec. Corp., 645 F. Supp. 1129, 1136 (W.D. Wis. 1986), aff'd, 830 F.2d 1405 (7th Cir. 1987).

¹⁸For a discussion of this larger national trend, see Thomas Cane & Sheila Sullivan, At a Crossroads or at Cross-Purposes?: The Future of the Economic Loss Doctrine in Wisconsin (unpublished essay on file with the authors). See also James E. Moore, Agristor Leasing v. Spindler: Economic Loss, Strict Liability and the U.C.C. - What a Mess, 34 S.D. L. Rev. 101 (1989); Ronald R. Pawlack & David W. Moore, The Role of the Federal Court and the Expansion of the Ambit of Liability of Manufacturers: Conceptual Approaches and Suggested Solution, 28 Drake L. Rev. 389 (1978-79); Cornelius J. Peck, Comments on Judicial Creativity, 69 Iowa L. Rev. 1 (1983); Stephen C. Tourek, Thomas H. Boyd & Charles Schoenwetter, Bucking the "Trend": The Uniform Commercial Code, the Economic Loss Doctrine, and Common Law Causes of Action for Fraud and Misrepresentation, 84 Iowa L. Rev. 875 (August 1999).

¹⁹See, e.g., Midwest Knitting Mills Inc. v. United States, 950 F.2d 1295, 1300 (7th Cir. 1991).

²⁰216 Wis. 2d 395, 405, 573 N.W.2d 842 (1998). Daanen involved a corporation that operated quarries, a manufacturer of rock crushers, and a distributor of the rock crushers. The manufacturer warranted its products to the distributor, and the distributor expressly disclaimed any warranties to its customers.

²¹See State Farm Mut. Ins. Co. v. Ford Motor Co., 225 Wis. 2d 305, 348, 592 N.W.2d 201 (1999). See also General Cas. Co. of Wis. v. Ford Motor Co., 225 Wis. 2d 553, 592 N.W.2d 198 (1999).

²²225 Wis. 2d at 315, 320.

²³Id. at 321.

²⁴Id. at 350.

²⁵Id. at 348 (citing Alloway v. General Marine Indus., 695 A.2d 264, 273 (N.J. 1997) (repudiating Santor)).

²⁶Northridge Co. v. W.R. Grace Co., 162 Wis. 2d 918, 471 N.W. 2d 179 (1991).

²⁷Id. at 923.

²⁸Wausau Tile Inc. v. County Concrete Corp., 226 Wis. 2d 235, 539 N.W.2d 445 (1999).

²⁹Id. at 264-65.

³⁰476 U.S. at 867.

³¹Wisconsin Power & Light Co., 645 F. Supp. at 1136. The court's analysis reflected its embrace of the East River premise that damage confined to a "package," such as a turbine, generator, and other units of machinery, purchased by the buyer was not damage to "other property." Id.

³²Midwhey Powder Co. v. Clayton Indus., 157 Wis. 2d 585, 591-92, 460 N.W.2d 426 (Ct. App. 1990).

³³Id.

³⁴See Wausau Tile, 226 Wis. 2d at 249 (citing East River, 476 U.S. at 671-72); Midwest Helicopters Airways Inc. v. Sikorsky Aircraft, 849 F. Supp. 666, 671-72 (E.D. Wis. 1994); Midwhey, 157 Wis. 2d at 590-91; Restatement (Third) of Torts § 21 cmt.; Casa Clara Condo. Ass'n v. Charley Toppino & Sons Inc., 620 So. 2d 1244, 1447 (Fla. 1993); Trans States Airlines v. Pratt & Whitney Canada Inc., 177 Ill. 2d 21, 682 N.E.2d 45 (1977).

³⁵Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875, 880-81 (1977).

³⁶Id. at 889-90.

³⁷Cooper Power Sys. Inc. v. Union Carbide Chems. & Plastics Co., 123 F.3d 675, 682 (7th Cir. 1997) (citing no authority for this proposition). The court noted that all the misrepresentations in the case were about the product itself and then, sidestepping any reference to the U.C.C. and common-law causes of action, concluded broadly that "commercial disputes ought to be resolved according to the principles of commercial law." Id. at 683.

³⁸Huron Tool & Eng'g Co. v. Precision Consulting Servs. Inc., 209 Mich. App. 365, 532 N.W.2d 541 (1995) (limiting the exception to situations in which fraud is "extraneous" to the contract). Explicitly underscoring its distance from Seeley and Sunnyslope, the court in Huron Tool flatly announced, without citation to authority, that the doctrine of economic loss "is not limited to the U.C.C." Id. at 374.

³⁹Raytheon Co. v. McGraw-Edison Co. 979 F. Supp. 858, 870-71 (E.D. Wis. 1997). Raytheon bought contaminated property from McGraw-Edison and sued to recover for a variety of damages. The court recognized that, because federal law required Raytheon to clean up the contamination, the suit could be seen as being about a safety hazard. Id. at 867. The court was persuaded, however, that the land was more like a "defective product" and concluded that any fraud or intentional misrepresentation was related only to the quality of the product, and therefore the claims fell within the doctrine of economic loss. Id. at 873-74.

⁴⁰Id. at 873. See also Ice Bowl L.L.C. v. Weigel Broadcasting Co., 14 F. Supp. 2d 1080 (E.D. Wis. 1988) (adopting the same position).

⁴¹See Budgetel Inns Inc. v. Micros Sys. Inc., 8 F. Supp 1137 (E.D. Wis. 1988). See also on reconsideration Budgetel II, 34 F. Supp. 720 (E.D. Wis. 1999).

⁴²See Douglas-Hanson Co. v. BF Goodrich Co., 229 Wis. 2d 132, 598 N.W.2d 262 (Ct. App. 1999), overruled in part by Tietsworth v. Harley Davidson Motor Co., 2004 WI 32, ¶ 32, 270 Wis. 2d 146, 677 N.W.2d 233.

⁴³Douglas-Hanson Co. v. BF Goodrich Co., 2001 WI 22, ¶ 1, 233 Wis. 2d 276, 607 N.W.2d 621.

⁴⁴See Home Valu Inc. v. Pep Boys, 213 F.3d 960, 964-65 (7th Cir. 2000).

⁴⁵Digicorp Inc. v. Ameritech Corp., 2003 WI 54, ¶ 3, 262 Wis. 2d 32, 662 N.W. 2d 652.

⁴⁶Id. at ¶ 5 n.2.

⁴⁷-2004 WI 32, ¶ 34, 270 Wis. 2d 146, 677 N.W.2d 233. Plaintiffs were members of a proposed class who wanted to sue Harley Davidson for negligence, strict products liability, common law fraudulent concealment, and deceptive trade practices. Id. at 7. They claimed to have been injured by their reliance on Harley Davidson's representations that the motorcycles they bought, which had a propensity for engine failure, were of "premium quality." Id. ¶ 8.

⁴⁸Id. ¶ 73 (Abrahamson, C.J., dissenting).

⁴⁹The ruling directly contradicts Seventh Circuit predictions. See Wausau Paper Mills Co. v. Chas. T. Main Inc., 789 F. Supp. 968, 974 (W.D. Wis. 1992). See also Stoughton Trailers Inc. v. Henkel Corp, 965 F. Supp 1227, 1235 (W.D. Wis. 1997).

⁵⁰2004 WI 139, ¶ 32.

⁵¹Id. ¶ 45.

⁵²See Mose v. Tedco Equities, 228 Wis. 2d 848, 598 N.W.2d 594 (Ct. App. 1999). Mose reviewed an environmental assessment before purchasing the contaminated land, and Tedco agreed, as a condition of the sale, to remediate the contamination. Id. at 852. When Tedco did not clean up the property, Mose sued. Id. As authority for the proposition that the economic loss doctrine applied to contaminated real estate, the court of appeals adopted Raytheon's analysis: "[w]e have not been provided with, nor do we discern any reason to forego application of the economic loss doctrine simply because the `product' is real estate." Id. at 859.

⁵³See Kailin v. Armstrong, 2002 WI App 770, ¶ 27, 252 Wis. 2d 676, 643 N.W.2d 132 (expanding, in a single sentence, application of the doctrine to all transactions involving real estate).

⁵⁴See Van Lare v. Vogt Inc., 2004 WI 110, ¶ 2, 274 Wis. 2d631, 683 N.W.2d 46. Van Lare purchased a gravel pit from Vogt; the option to purchase contained a warranty that Vogt had no knowledge or notice of contaminants, underground tanks, or other defects. Id.. ¶ 4. Years after the sale, evidence of dumping was discovered. Van Lare originally sued under intentional misrepresentation, negligent misrepresentation, and strict liability misrepresentation but eventually proceeded only under strict liability. Id. ¶¶ 11, 13.

⁵⁵Id. ¶ 21.

⁵⁶Id.

⁵⁷Id. ¶ 32.

⁵⁸Moransais v. Heathman, 744 So. 2d 973, 981 (Fla. 1999).

⁵⁹In Kaloti, the alleged fraud did not directly pertain to the quality of the goods, food products, that are the subject of the contract but rather to concealing a new marketing strategy that made it impossible for the buyers, food wholesalers, to distribute those products. www.wicourts.gov, WI. App. Certification No. 03-1225, p. 6.

⁶⁰Linden also potentially presents the question of the proper test to use for determining whether a contract is for goods or services.

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