WisBar News: Supreme Court Addresses Economic Loss Doctrine in Case by JeeTops Maker:

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  • WisBar News
    January
    10
    2020

    Supreme Court Addresses Economic Loss Doctrine in Case by JeeTops Maker

    Joe Forward

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    The Wisconsin Supreme Court says a common law misrepresentation claim is barred by the economic loss doctrine, but a statutory misrepresentation claim, under Wis. Stat. § 100.18, can proceed. The court also ruled that section 100.18 claims are not subject to heightened pleading standards
    Jeep

    Jan. 10, 2020 – The maker of acrylic skylights for Jeep Wrangler vehicles sued Dow Chemical Company, alleging Dow Chemical made misrepresentations about an adhesive product. Recently, the Wisconsin Supreme Court ruled the case can proceed.

    Chris Hinrich, who owns the company that manufactures JeeTops, brought a common law misrepresentation claim, as well as a statutory misrepresentation claim under Wis. Stat. section 100.18, which prohibits deceptive or misleading representations about products. Dow Chemical filed a motion to dismiss for failure to state a claim.

    Recently, in Hinrichs v. Dow Chemical Company, 2020 WI 2 (Jan. 9, 2020), the Wisconsin Supreme Court (5-0) ruled that Wisconsin’s economic loss doctrine barred the common law misrepresentation claim but (4-1) did not bar the statutory claim.

    A four-justice majority also ruled that a heightened pleading standard for claims of fraud does not apply to statutory claims under section 100.18.

    Common Law Misrepresentation

    Assuming all facts to be true, the supreme court examined whether Hinrich’s claims withstood a motion to dismiss for failure to state a claim.

    The JeeTop skylights were installed aftermarket in Jeep Wranglers and boasted “unprecedented” and “unparalleled” landscape views for Jeep occupants.

    Dow Chemical’s adhesive was used to attach the JeeTops and provide a watertight seal. At the start, JeeTops achieved popularity and a following of customers.

    In 2013, Dow Chemical offered a new primer to use with its adhesive. Hinrich soon reported that customers were complaining of cracking and crazing to the acrylic JeeTops. Upon investigation, the problems linked to Dow’s adhesive system.

    But that was after Dow Chemical allegedly told Hinrich that its product was testing fine on the acrylic JeeTops, and there were no problems.

    By the time Hinrich secured a replacement adhesive system, the JeeTops product had suffered negative publicity, and Hinrich lost his customer base. The lawsuit followed.

    The supreme court, in an opinion by Justice Anne Walsh Bradley, noted that the economic loss doctrine “is a judicially created doctrine with three primary purposes.”

    First, it maintains the distinction between tort law and contract law. Second, it protects the freedom of parties to allocate risk by contract.

    Third, ‘the doctrine ‘encourages the party best situated to assess the risk [of] economic loss, the commercial purchaser, to assume, allocate, or insure against that risk.’”

    “We have described the economic loss doctrine as holding that ‘a commercial purchaser of a product cannot recover solely economic losses from the manufacturer under negligence or strict liability theories,” Justice A.W. Bradley explained.

    The economic loss doctrine, Justice A.W. Bradley noted, allows parties to pursue contractual remedies when asserting an economic loss claim, not tort remedies.

    There are exceptions, but the supreme court concluded that no exception applied in this case. Hinrich argued that a “fraud in the inducement” exception applied – Dow Chemical assured Hinrich, after testing, that Dow’s adhesive was properly functioning.

    But the supreme court concluded that the exception did not apply because the alleged misrepresentation regarding the effectiveness of Dow’s adhesive “is related to the quality and characteristics of the product” and was not extraneous to the contract.

    “A misrepresentation relates to the quality or characteristics of the goods sold if it is expressly dealt with in the contract’s terms,” Justice A.W. Bradley wrote.

    “If not addressed explicitly in the contract, a misrepresentation is still related to the quality or characteristics of the goods sold … if the misrepresentation informs the reasonable expectations of the parties to the risk of loss in the event the goods purchased did not meet the purchaser’s expectations,” A.W. Bradley noted.

    Other Property Exception

    Hinrich claimed a second exception applied, the so-called “other property” exception. According to the court’s opinion, this exception “does not bar a commercial purchaser’s claims based on personal injury or damage to property other than the product, or economic loss claims that are alleged in combination with noneconomic losses.”

    Courts examine if the defective product (here Dow’s adhesive) and the damaged property (here, JeeTops) are part of an “integrated system.”

    “If the product and damaged property are part of such as system, then any damage to that property is considered to be damage to the product itself,” A.W. Bradley noted.

    If not part of an integrated system, the “other property” exception could apply based on a “disappointed expectations” test. Under that test, according to the supreme court’s opinion, courts “focus on the products expected function and whether the purchaser should have foreseen that the product could cause the damage at issue.”

    The supreme court concluded that JeeTops and Dow Chemical’s adhesive were components of an integrated system, and thus the “other property” exception did not apply to bar application of the economic loss doctrine in this case.

    Section 100.18 Claim

    Although the economic loss doctrine barred Hinrich’s common law misrepresentation claim, the supreme court ruled that his statutory misrepresentation claim could proceed, concluding the economic loss doctrine did not bar the statutory claim:

    “[T]he policies underlying the economic loss doctrine – the allocation of risk and the distinction between tort and contract law – are irrelevant to the legislature’s choice to provide a purely statutory cause of action and remedy by way of § 100.18.”

    The court rejected Dow Chemical’s claim that section 100.18 did not apply because the statute requires a misrepresentation to “the public,” and Hinrich is not “the public.”

    Justice A.W. Bradley noted a prior case in which the court ruled that section 100.18 applied to representations made privately to prospective purchasers.

    “[T]he doctrine of stare decisis militates against the precipitous change in the law that Dow seeks,” she wrote, noting one person can be “the public” under section 100.18.

    Thus, the court concluded that Hinrich stated a viable claim under section 100.18, allowing the case to return to circuit court for further proceedings.

    Heightened Pleading Standard?

    Noting it as an issue of first impression, the supreme court ruled that Hinrich’s section 100.18 claim was not subject to the heightened pleading standard for fraud cases, under Wis. Stat. section 802.03(2), which must be stated with particularity.

    “Heightened pleading requirements may prevent private, pro se parties from seeking redress for deceptive representations,” Justice A.W. Bradley wrote.

    “Such a requirement would run counter to Wis. Stat. § 100.18’s purpose as a consumer protection statute with broad scope.”

    Concurrence, Dissent

    Justice Rebecca Bradley wrote a separate opinion, concurring in part and dissenting in part. She agreed that the economic loss doctrine barred the common law misrepresentation claim, and no exceptions applied.

    However, Justice R. Bradley would have reversed the appeals court decision to allow the section 100.18 claim to proceed.

    “As a matter of law, Hinrichs was not a member of ‘the public” under § 100.18(1) when Dow made the statement Hinrichs alleges to be a misrepresentation because Dow directed the statement to Hinrichs alone, not ‘the public’ generally,” she wrote.

    Based on this conclusion, Justice R. Bradley did not address whether section 100.18 requires a heightened pleading standard.

    Justice Daniel Kelly and Justice Brian Hagedorn did not participate.




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