Case Title: Kaloti Enterprises, Inc. v. Kellogg Sales Company

Citation: 2005 WI 111

Docket Number: 2003AP001225

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2005-07-08T00:00:00Z

Document:
2005 WI 111 
 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2003AP1225 
COMPLETE TITLE: 
 
 
Kaloti Enterprises, Inc.,  
          Plaintiff-Appellant, 
     v. 
Kellogg Sales Company and Geraci & Associates, 
Inc.,  
          Defendants-Respondents. 
 
 
 
 
ON CERTIFICATION FROM THE COURT OF APPEALS 
 
 
OPINION FILED: 
July 8, 2005   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
January 7, 2005   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Waukesha   
 
JUDGE: 
Donald J. Hassin, Jr.   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
ABRAHAMSON, C.J., concurs (opinion filed). 
BRADLEY and BUTLER, JR., J.J., join the 
concurrence.   
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the plaintiff-appellant there were briefs by Michael P. 
Stupar, George S. Peek and Stupar, Schuster & Cooper, S.C., 
Milwaukee, and oral argument by George S. Peek. 
 
For the defendant-respondent, Geraci & Associates, Inc., 
there was a brief by Scott W. Hansen, Laura A. Brenner, James J. 
Eichholz and Reinhart Boerner Van Deuren, S.C., Milwaukee, and 
oral argument by Jeremy P. Levinson. 
 
For the defendant-respondent, Kellogg Sales Company, there 
was a brief by Brian R. Smigelski, Jeremy P. Levinson and 
Friebert, Finerty & St. John, S.C., Milwaukee, and oral argument 
by Jeremy P. Levinson. 
 
An amicus curiae brief was filed by William C. Gleisner, 
III, and Law Offices of William C. Gleisner, III, Milwaukee, on 
behalf of the Wisconsin Academy of Trial Lawyers. 
2005 WI 111 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2003AP1225  
(L.C. No. 
2002CV893) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Kaloti Enterprises, Inc.,  
 
          Plaintiff-Appellant, 
 
     v. 
 
Kellogg Sales Company and Geraci &  
Associates, Inc.,  
 
          Defendants-Respondents. 
 
FILED 
 
JUL 8, 2005 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
APPEAL from an order of the Circuit Court for Waukesha 
County, Donald J. Hassin, Jr., Judge.  Reversed and cause 
remanded.   
 
¶1 
PATIENCE DRAKE ROGGENSACK, J.   On certification from 
the court of appeals, we review a decision of the circuit court 
for Waukesha County dismissing an amended complaint filed by 
petitioner, 
Kaloti 
Enterprises, 
Inc. 
(Kaloti), 
against 
respondents, Kellogg Sales Company (Kellogg) and Geraci & 
Associates, Inc. (Geraci), for failure to state a claim.  The 
court of appeals certified two questions that can be summarized 
as follows:  (1) whether a duty to disclose facts arises between 
No. 
2003AP1225   
 
2 
 
sophisticated parties to a commercial transaction where the 
parties have an established practice of doing business and the 
facts are material to a change in that practice of doing 
business; (2) whether Kaloti's intentional misrepresentation 
claim is barred by the economic loss doctrine. 
¶2 
Based solely on Kaloti's allegations, we conclude that 
Kellogg and Geraci had a duty of disclosure that they failed to 
satisfy, thereby providing a basis for Kaloti's intentional 
misrepresentation claim, and that under these circumstances, 
Kaloti's intentional misrepresentation claim was not barred by 
the economic loss doctrine.  Therefore, we reverse the circuit 
court's dismissal of Kaloti's amended complaint, and we remand 
for further proceedings.   
I.  BACKGROUND1 
¶3 
Kellogg is a wholly owned subsidiary corporation of 
Kellogg Company, Inc.  Kaloti is a wholesaler of food products.  
Over several years, Kellogg and Kaloti entered into numerous 
transactions 
through 
Geraci, 
Kellogg's 
agent. 
 
In 
each 
transaction, Geraci approached Kaloti to sell Kellogg products.  
Geraci negotiated all elements of the transaction for Kellogg, 
including 
product 
specifics, 
price, 
delivery 
schedule, 
allowances and terms of sale.  Geraci accepted purchase orders 
from Kaloti and processed these orders, which were ultimately 
                                                 
1 Because this is an appeal of a dismissal for failure to 
state a claim, we accept as true, for the purpose of this 
review, the facts alleged in the amended complaint.  See 
Ollerman v. O'Rourke Co., 94 Wis. 2d 17, 24, 288 N.W.2d 95 
(1980).   
No. 
2003AP1225   
 
3 
 
accepted by Kellogg.  Following the negotiation of each 
contract, Kellogg "drop shipped" its product directly to Kaloti.  
Fleming-Marshfield, Inc. invoiced Kaloti and collected for 
Kellogg.  Kaloti then sold Kellogg's products. 
¶4 
Kaloti 
alleges 
that, 
through 
a 
series 
of 
such 
transactions, a practice of doing business arose among Kaloti, 
Geraci and Kellogg, and that Geraci and Kellogg were aware that 
Kaloti bought Kellogg's products to resell them "as a 'secondary 
supplier' to large market stores." 
¶5 
Kellogg Company, Inc. acquired Keebler Foods Company 
(Keebler).  As a result of that acquisition, Kellogg changed how 
it marketed NutriGrain and Rice Krispie Treat products.  Instead 
of marketing these products through distributors or wholesalers 
such as Kaloti, Kellogg decided to sell them directly to the 
same large market stores to which Kaloti sold Kellogg's 
products.  Kaloti did not know of Kellogg's decision to begin 
direct sales. 
¶6 
On May 14, 2001, after Geraci knew that Kellogg had 
changed to a direct-sales mode of marketing, Geraci solicited an 
order from Kaloti.  The order was a $124,000 "quarterly 
promotion order," for NutriGrain and Rice Krispie Treats.  
Because of their past dealings with Kaloti, Geraci and Kellogg 
knew that it would take Kaloti three months to resell this 
order.  Kaloti intended to market this order as it had in prior 
instances, as a secondary supplier to large stores, and it 
relied on that market being open.  Further, in soliciting and 
accepting Kaloti's order, Geraci and Kellogg knew that Kellogg's 
No. 
2003AP1225   
 
4 
 
change in marketing scheme would deny Kaloti the market it had 
used in the past to resell Kellogg's products.   
¶7 
Kellogg delivered the order to Kaloti on June 1, 2001, 
and Kaloti paid for it.2  On or about June 14, 2001, Kaloti's 
major and usual customers notified Kaloti that they would no 
longer purchase products from Kaloti because Kellogg was selling 
directly to them.   
¶8 
On June 15, 2001, Geraci representative Michael Angele 
told Kaloti employee Mary Beth Welhouse that Geraci had not 
advised Kaloti of Kellogg's anticipated change in marketing 
strategy because of a confidentiality agreement between Kellogg 
and Geraci in respect to Kellogg's new marketing strategy.  The 
same day, Kaloti notified Geraci and Kellogg that it was 
rescinding the May 14, 2001 purchase, advising them that it 
would not have placed the order or accepted the product if it 
had known that Kellogg had changed to a direct-sales mode of 
marketing.  Kaloti attempted to return the product, but Kellogg 
has refused to accept delivery and has refused to reimburse 
Kaloti.   
¶9 
Kaloti 
alleges 
that 
Geraci 
and 
Kellogg 
acted 
intentionally in concealing facts material to Kellogg's change 
in marketing strategy, which change caused Kaloti to be shut out 
of the market it had utilized in the past to resell Kellogg's 
products.  Kaloti attempted to mitigate its damages and claims 
                                                 
2 Kaloti paid for this product pursuant to invoicing from 
Fleming-Marshfield, although it is not clear from the amended 
complaint when this payment was made. 
No. 
2003AP1225   
 
5 
 
that, notwithstanding those efforts, it has lost $100,000 due to 
Kellogg's intentional misrepresentation. 
II.  DISCUSSION 
A. 
Standard of Review 
¶10 We review a dismissal for failure to state a claim as 
a question of law, without deference to the circuit court's 
decision.  Tietsworth v. Harley-Davidson, Inc., 2004 WI 32, ¶11, 
270 Wis. 2d 146, 677 N.W.2d 233; Wausau Tile, Inc. v. County 
Concrete Corp., 226 Wis. 2d 235, 245, 593 N.W.2d 445 (1999).  In 
the present case, our inquiry begins with consideration of 
whether 
the 
amended 
complaint 
states 
an 
intentional 
misrepresentation claim, the determination of which turns on 
whether Geraci and Kellogg had a duty to disclose certain facts 
to Kaloti.  Whether a duty exists is also a question of law that 
we review independently of the circuit court.  See Ritchie v. 
Clappier, 109 Wis. 2d 399, 403, 326 N.W.2d 131 (Ct. App. 1982).  
And finally, the application of the economic loss doctrine to a 
set of facts 
presents another question of 
law for our 
independent review.  Ins. Co. of N. Am. v. Cease Elec. Inc., 
2004 WI 139, ¶15, 276 Wis. 2d 361, 688 N.W.2d 462. 
B. 
Failure to State a Claim 
¶11 A motion to dismiss for failure to state a claim tests 
the legal sufficiency of the complaint to state a claim for 
which relief may be granted.  Tietsworth, 270 Wis. 2d 146, ¶11.  
When testing the legal sufficiency of a claim, all facts alleged 
in the complaint, as well as all reasonable inferences from 
those facts, are accepted as true.  Ollerman v. O'Rourke Co., 94 
No. 
2003AP1225   
 
6 
 
Wis. 2d 17, 24, 288 N.W.2d 95 (1980).  Furthermore, pleadings 
are liberally construed.  Id.  The complaint need not state all 
the ultimate facts constituting the cause of action, but rather, 
the complaint should be dismissed as legally insufficient only 
if there are no conditions under which the plaintiff can 
recover.  Id. 
C. 
Intentional Misrepresentation 
¶12 There 
are 
three 
categories 
of 
common 
law 
misrepresentation:  intentional, negligent and strict liability 
misrepresentation.  Tietsworth, 270 Wis. 2d 146, ¶12.  Kaloti's 
claim is for intentional misrepresentation, sometimes referred 
to as fraudulent misrepresentation, Ramsden v. Farm Credit 
Services of North Central Wisconsin ACA, 223 Wis. 2d 704, 718 
n.9, 590 N.W.2d 1 (Ct. App. 1998), or common-law fraud, see 
Tietsworth, 270 Wis. 2d 146, ¶51.  To state a claim for 
intentional misrepresentation, the following allegations must be 
made: 
(1) the defendant made a factual representation; (2) 
which was untrue; (3) the defendant either made the 
representation knowing it was untrue or made it 
recklessly without caring whether it was true or 
false; (4) the defendant made the representation with 
intent to defraud and to induce another to act upon 
it; and (5) the plaintiff believed the statement to be 
true and relied on it to his/her detriment. 
Ramsden, 223 Wis. 2d at 718-19 (footnote omitted); accord 
Tietsworth, 270 Wis. 2d 146, ¶13. 
¶13 An 
intentional 
misrepresentation 
claim 
may 
arise 
either from a "failure to disclose a material fact" or from a 
No. 
2003AP1225   
 
7 
 
"statement of a material fact which is untrue."  See Ramsden, 
223 
Wis. 2d 
at 
713. 
 
Here, 
Kaloti's 
intentional 
misrepresentation claim is based on the failure to disclose a 
material fact.  However, "[a] person in a business deal must be 
under a duty to disclose a material fact before he can be 
charged with a failure to disclose."  Southard v. Occidental 
Life Ins. Co., 31 Wis. 2d 351, 359, 142 N.W.2d 844 (1966); 
accord Tietsworth, 270 Wis. 2d 146, ¶14 (citing Ollerman, 94 
Wis. 2d at 26).  When there is a duty to disclose a fact, the 
law has treated the failure to disclose that fact "'as 
equivalent to a representation of the nonexistence of the 
fact.'"  Hennig v. Ahearn, 230 Wis. 2d 149, 165, 601 N.W.2d 14 
(Ct. App. 1999) (quoting Ollerman, 94 Wis. 2d at 26).3  
¶14 Whether Kellogg and Geraci had a duty to disclose is 
the only aspect of Kaloti's intentional misrepresentation claim 
that is at issue here.  In particular, we are asked to determine 
whether Kellogg and Geraci had a duty to disclose a change in 
Kellogg's marketing strategy that largely closed the markets on 
which they knew Kaloti relied to sell Kellogg's products. 
                                                 
3 We have never held that a claim for strict responsibility 
for misrepresentation or negligent misrepresentation can arise 
from a failure to disclose.  Therefore, it remains an open 
question.  In Badger Pharmacal, Inc. v. Colgate-Palmolive Co., 1 
F.3d 621, 627 (7th Cir. 1993), cited by the concurrence at ¶68, 
claims for strict responsibility for misrepresentation and 
negligent misrepresentation were brought; however, the court did 
not address whether these claims can arise solely from the 
breach of a duty to disclose. 
No. 
2003AP1225   
 
8 
 
¶15 In Ollerman, we decided that a duty to disclose had 
arisen in the course of a real estate transaction.  We discussed 
at length the circumstances under which a duty to disclose a 
material fact may arise in business transactions.  Ollerman, 94 
Wis. 2d at 24-43.  The usual rule is that there is no duty to 
disclose in an arm's-length transaction.  Id. at 29.  However, 
courts have carved out a number of exceptions to that rule and 
have refused to apply the rule when to do so would work an 
injustice.4  Id. at 30.   
¶16 Determining whether there is a legal duty and the 
scope of that duty presents questions of law that require courts 
to make policy determinations.  Tietsworth, 270 Wis. 2d 146, 
¶¶14-15; see also Ollerman, 94 Wis. 2d at 27.  The Ollerman 
decision noted that, in making this determination,  
many factors interplay:  The hand of history, our 
ideas of morals and justice, the convenience of 
administration of the rule, and our social ideas as to 
where the loss should fall.  In the end the court will 
                                                 
4 For example, we noted in Ollerman that courts have not 
applied the usual rule: 
where the seller actively conceals a defect or where 
[the seller] prevents investigation; where the seller 
has told a half-truth or has made an ambiguous 
statement if the seller's intent is to create a false 
impression and [the seller] does so; where there is a 
fiduciary relationship between the parties; or where 
the facts are peculiarly and exclusively within the 
knowledge of one party to the transaction and the 
other party is not in a position to discover the 
facts.   
Ollerman, 94 Wis. 2d at 31. 
No. 
2003AP1225   
 
9 
 
decide whether there is a duty on the basis of the 
mores of the community. 
Ollerman, 94 Wis. 2d at 28 (quotations and quoted source 
omitted).  As to the mores of the commercial world in 
particular, we further explained in Ollerman, "[T]he type of 
interest protected by the law of misrepresentation in business 
transactions is the interest in formulating business judgments 
without being misled by others——that is, an interest in not 
being cheated."  Id. at 29-30.   
¶17 We note that the Restatement (Second) of Torts § 551 
cmt. L (1977),5 as well as several of the illustrations provided 
with it, have the following elements:  (1) the non-disclosing 
party knew that the other party was not aware of the fact; (2) 
the mistaken party could not discover the fact by ordinary 
investigation or inspection, or he or she could not otherwise 
reasonably be expected to discover the fact; and (3) the 
mistaken party would not have entered into the transaction if he 
or she knew the fact.   
                                                 
5 The comment provides this example:  
[A] seller who knows that his cattle are infected with 
tick fever or contagious abortion is not free to 
unload them on the buyer and take his money, when he 
knows that the buyer is unaware of the fact, could not 
easily discover it, would not dream of entering into 
the bargain if he knew and is relying upon the 
seller's good faith and common honesty to disclose any 
such fact if it is true. 
Restatement (Second) of Torts § 551 cmt. L (1977) (emphasis 
added). 
No. 
2003AP1225   
 
10 
 
¶18 The second element, that the mistaken party could not 
reasonably be expected to discover the fact, is particularly 
important to the present analysis.  As we remarked in Ollerman, 
parties to a business transaction must "use their faculties and 
exercise ordinary business sense, and not [] call on the law to 
stand in loco parentis to protect them in their ordinary 
dealings with other business people."  Ollerman, 94 Wis. 2d at 
30.  Further, "in a free market the diligent should not be 
deprived of the fruits of superior skill and knowledge lawfully 
acquired."  Id. at 29-30; see also Market St. Assocs. Ltd. 
P'ship v. Frey, 941 F.2d 588, 593-94 (7th Cir. 1991) (remarking 
that "the law contemplates that people frequently will take 
advantage of the ignorance of those with whom they contract, 
without thereby incurring liability").   
¶19 However, it is another matter entirely when one party 
exclusively holds knowledge of facts material to the transaction 
that the other party has no means of acquiring.  As we said in 
Ollerman, "where the [material] facts are peculiarly and 
exclusively within the knowledge of one party to the transaction 
and the other party is not in a position to discover the facts 
for himself [or herself]," disclosure is required.  Ollerman, 94 
Wis. 2d at 31.  We similarly noted prominent legal commentator 
Dean Prosser's observation that courts have tended to find a 
duty to disclose in cases "where the defendant has special 
knowledge or means of knowledge not open to the plaintiff and is 
aware that the plaintiff is acting under a misapprehension as to 
facts which could be of importance to him, and would probably 
No. 
2003AP1225   
 
11 
 
affect his decision."  Id. at 31-32 (quoting William L. Prosser, 
The Law of Torts 697 (1971) (emphasis added). 
¶20 Drawing on the above-stated principles from our case 
law, we conclude that a party to a business transaction has a 
duty to disclose a fact where:  (1) the fact is material to the 
transaction; (2) the party with knowledge of that fact knows 
that the other party is about to enter into the transaction 
under a mistake as to the fact; (3) the fact is peculiarly and 
exclusively within the knowledge of one party, and the mistaken 
party could not reasonably be expected to discover it; and (4) 
on account of the objective circumstances, the mistaken party 
would reasonably expect disclosure of the fact. 
¶21 In turning to application of this standard in the 
present case, we note the requirements of Wis. Stat. §§ 802.02 
and 802.03(2) (2001-02)6 that regard, respectively, pleadings 
generally and pleadings in cases of fraud.  While § 802.02(1)(a) 
provides that pleadings setting forth a claim for relief need to 
contain 
"[a] 
short 
and 
plain 
statement 
of 
the 
claim," 
§ 802.03(2) provides, "In all averments of fraud . . . the 
circumstances constituting fraud . . . shall be stated with 
particularity."  Pursuant to § 802.03(2), "allegations of fraud 
must specify the particular individuals involved, where and when 
misrepresentations occurred, and to whom misrepresentations were 
made."  Putnam v. Time Warner Cable of S.E. Wisconsin, Ltd. 
                                                 
6 All further references to the Wisconsin Statutes are to 
the 2001-02 version unless otherwise noted.   
No. 
2003AP1225   
 
12 
 
P'ship, 2002 WI 108, ¶26, 255 Wis. 2d 447, 649 N.W.2d 626 
(citing Friends of Kenwood v. Green, 2000 WI App 217, ¶16, 239 
Wis. 2d 78, 619 N.W.2d 271).  Such detailed pleadings put 
defendants on notice "so that they may prepare meaningful 
responses to the claim."  Id. (quotations and quoted source 
omitted).   
¶22 We conclude that the allegations Kaloti made in its 
amended complaint satisfy the statutory pleading requirements 
and are sufficient, if proved at trial, to establish that 
Kellogg and Geraci each had a duty of disclosure.  First, that 
Kellogg would be selling directly to the large stores in 
Kaloti's usual area of distribution is material, as Kaloti, a 
wholesaler and secondary supplier, bought products from Kellogg 
in order to resell them to these same large stores and would not 
have placed the May 14, 2001 order if it had known that Kellogg 
was going to sell directly.  Second, Kellogg and Geraci knew 
that Kaloti was buying the products to resell them to these same 
stores, and that Kellogg's new mode of marketing would largely 
deny Kaloti its customary market.  Third, while the Kellogg-
Keebler merger may have been publicly announced, we infer from 
the confidentiality agreement between Kellogg and Geraci that 
the decision of Kellogg to engage in direct sales, rather than 
to sell through distributors or wholesalers, was not publicly 
announced.  Accordingly, the fact that Kellogg had changed its 
mode of marketing was peculiarly and exclusively within Kellogg 
and Geraci's knowledge, and Kaloti could not reasonably be 
expected to have discovered this fact.  Finally, because Kaloti 
No. 
2003AP1225   
 
13 
 
had bought products from Kellogg for the purpose of acting as a 
secondary supplier for a number of years, it would be reasonable 
for Kaloti to expect that if Kellogg was going to sell these 
products directly to the same stores to which Kaloti customarily 
sold, Kellogg and its agent, Geraci, would advise Kaloti of 
this.   
¶23 Kellogg and Geraci argue that they had no duty of 
disclosure to Kaloti because they were sophisticated, commercial 
entities engaged in an arm's-length transaction.  As support for 
this proposition, they cite two federal court cases, Guyer v. 
Cities Service Oil Co., 440 F. Supp. 630 (E.D. Wis. 1977) and 
Badger Pharmacal, Inc. v. Colgate-Palmolive Co., 1 F.3d 621 (7th 
Cir. 1993).  First, federal cases applying Wisconsin law provide 
persuasive, but not precedential, authority.  See Daanen & 
Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 400, 573 
N.W.2d 842 (1998) ("This court is not bound by a federal court's 
interpretation of Wisconsin law.").  In the 1977 Guyer decision, 
the district court concluded that the defendant oil company did 
not have a duty to disclose a change in marketing strategy to 
its gas station operators and lessees because there was no 
fiduciary relationship between the parties.  Guyer, 440 F. Supp. 
at 633.  Guyer was decided several years before our decision in 
Ollerman that recognized a broadening of Wisconsin law regarding 
the duty of disclosure and is therefore not persuasive.  See 
id.; Ollerman, 94 Wis. 2d at 29-42.  In Badger Pharmacal, the 
Seventh Circuit stated that "[w]hen two corporations, with the 
benefit of counsel, negotiate a commercial transaction at arms 
No. 
2003AP1225   
 
14 
 
length, neither owes nor assumes a duty to disclose information 
to the other."  Badger Pharmacal, 1 F.3d at 627.  This 
mischaracterizes Wisconsin law by speaking too broadly and by 
failing 
to 
recognize 
that 
there 
are 
exceptions 
to 
the 
traditional "no duty to disclose" rule.  See Ollerman, 94 
Wis. 2d at 29-42. 
¶24 Kellogg and Geraci further argue that an expansion of 
tort law will "wreak uncertainty on commercial arrangements that 
depend on order and certainty" and that, rather than rely on 
tort law, Kaloti should have acted diligently and negotiated 
contract terms to address the allocation of the risk at issue 
here.  However, we are satisfied that our narrow holding in this 
case balances the general requirement that each party to a 
transaction must diligently protect its own self-interest, 
Ollerman, 94 Wis. 2d at 30, against the business community's 
interest 
in 
formulating 
business 
judgments 
without 
being 
intentionally misled by others, id. 
¶25 Kellogg also argues that it had no duty of disclosure 
to Kaloti because the fact at issue did not satisfy the "basic 
fact" threshold,7 as that term was proposed in the Restatement 
                                                 
7 Comment 
j to Restatement (Second) of 
Torts 
§ 551, 
discusses the distinction the Restatement position makes between 
facts that are basic and those that are material, stating in 
part:  
A basic fact is a fact that is assumed by the parties 
as a basis for the transaction itself.  It is a fact 
that 
goes 
to 
the 
basis, 
or 
essence, 
of 
the 
transaction, and is an important part of the substance 
of what is bargained for or dealt with.  Other facts 
may serve as important and persuasive inducements to 
No. 
2003AP1225   
 
15 
 
(Second) of Torts § 551(2)(e), a standard that Ollerman drew 
upon.  However, we declined in Ollerman to adopt the "basic 
fact" element of the Restatement standard, holding instead that 
it was the materiality of the fact that mattered.  Ollerman, 94 
Wis. 2d at 42.  We similarly decline to adopt the "basic fact" 
versus "material fact" distinction and reaffirm that the 
relevant inquiry, as to that element of the standard articulated 
above, is whether the fact is material.  See id.  Any 
implication to the contrary taken from the concurrence, ¶61, 
would be misplaced.8 
¶26 While we conclude that the allegations made in 
Kaloti's amended complaint are sufficient to state that Kellogg 
and Geraci had a duty of disclosure that they failed to meet, we 
note that Kaloti still must prove all the elements of the claim 
at trial, including whether the fact in question was material, 
whether Kellogg or Geraci knew Kaloti was mistaken as to this 
fact, whether Kaloti should reasonably have been expected to 
discover the fact, and whether Kaloti's reliance on Kellogg and 
                                                                                                                                                             
enter into the transaction, but not go to its essence.  
These facts may be material, but they are not basic.   
8 The concurrence implies that Hennig v. Ahearn, 230 Wis. 2d 
149, 601 N.W.2d 14 (Ct. App. 1999) concluded that an actionable 
failure to disclose must be one of a "basic" fact.  Concurrence, 
¶61 n.14.  The concurrence misreads Hennig.  Hennig relied on 
Ollerman and Ollerman's extensive quotes of the Restatement 
(Second) of Torts.  Hennig, 230 Wis. 2d at 165-68.  In its own 
wording of the duty to disclose, it did not use "basic" fact as 
a necessary criterion.  Id.  Instead, Hennig explored whether 
the insertion of new terms into a contract without disclosing 
that the insertion had been made could rise to the level of an 
intentional misrepresentation.  Id. at 165. 
No. 
2003AP1225   
 
16 
 
Geraci's silence was justifiable.  See Ollerman, 94 Wis. 2d at 
42-43.9 
D. 
Economic Loss Doctrine 
¶27 Kellogg and Geraci also argue that the economic loss 
doctrine bars Kaloti's intentional misrepresentation claim.  The 
economic loss doctrine is a judicially created rule, introduced 
in Wisconsin in Sunnyslope Grading, Inc. v. Miller, Bradford & 
Risberg, Inc., 148 Wis. 2d 910, 437 N.W.2d 213 (1989).  In 
Sunnyslope, we held that "a commercial purchaser of a product 
cannot recover solely economic losses from the manufacturer 
under negligence or strict liability theories, particularly, as 
here, where the warranty given by the manufacturer specifically 
precludes the recovery of such damages." Id. at 921; accord, 
e.g., Cease Elec., 276 Wis. 2d 361, ¶22.  Since Sunnyslope, 
Wisconsin courts have further defined the parameters of the 
economic loss doctrine and referred to it more broadly as 
"preclud[ing] contracting parties from pursuing tort recovery 
for purely economic or commercial losses associated with the 
contract relationship."  Van Lare v. Vogt, Inc., 2004 WI 110, 
¶19, 274 Wis. 2d 631, 683 N.W.2d 46 (quoting Tietsworth, 270 
Wis. 2d 146, ¶23).   
                                                 
9 The concurrence suggests that the majority opinion imposes 
a duty 
to disclose that 
is 
"well 
beyond 
our 
caselaw," 
concurrence, ¶57, and it also laments that we have not permitted 
use of this duty to disclose on a broad enough basis, id. at 
¶55.  For the reasons set out above and below, we disagree with 
both assertions. 
No. 
2003AP1225   
 
17 
 
¶28 The 
economic 
loss 
doctrine 
is 
"'based 
on 
an 
understanding that contract law and the law of warranty, in 
particular, is better suited than tort law for dealing with 
purely economic loss in the commercial arena.'"  Tietsworth, 270 
Wis. 2d 146, ¶26 (quoting Daanen, 216 Wis. 2d at 403-04).  As 
such, its purpose is to preserve the distinction between 
contract and tort by requiring transacting parties to pursue 
only their contractual remedies when asserting an economic loss 
claim.  Cease Elec., 276 Wis. 2d 361, ¶24.  As we first 
explained in Daanen and have repeated many times, the economic 
loss doctrine seeks to further the following policies:  "'(1) to 
maintain the fundamental distinction between tort law and 
contract law; (2) to protect commercial parties' freedom to 
allocate economic risk by contract; and (3) to encourage the 
party best situated to assess the risk [of] economic loss, the 
commercial purchaser, to assume, allocate, or insure against 
that risk.'"  E.g., Van Lare, 274 Wis. 2d 631, ¶17 (quoting 
Daanen, 216 Wis. 2d at 403). 
¶29 For purposes of the economic loss doctrine, we have 
defined "economic loss" as "damages resulting from inadequate 
value because the product is inferior and does not work for the 
general purposes for which it was manufactured and sold." 
Daanen, 216 Wis. 2d at 400-01 (quotations and quoted source 
omitted); accord, e.g., Cease Elec., 276 Wis. 2d 361, ¶23.  
Recovery for "economic loss" refers to recovery as a result of a 
product failing in its intended use, Daanen, 216 Wis. 2d at 405-
06, or failing to live up to a contracting party's expectations, 
No. 
2003AP1225   
 
18 
 
see Tietsworth, 270 Wis. 2d 146, ¶24.  "Economic loss" does not 
include personal injury or damage to other property.  Daanen, 
216 Wis. 2d at 402.   
¶30 Wisconsin courts have recognized that the economic 
loss doctrine bars misrepresentation claims based in negligence, 
Prent Corp. v. Martek Holdings, Inc., 2000 WI App 194, ¶21, 238 
Wis. 2d 777, 618 N.W.2d 201, and strict responsibility, Van 
Lare, 274 Wis. 2d 631, ¶28.  However, we have not heretofore 
decided whether and to what extent the economic loss doctrine 
bars claims for fraud in the inducement, as alleged here.  See 
Tietsworth, 270 Wis. 2d 146, ¶¶31-35.  Liability for fraud in 
the inducement requires that the five elements of an intentional 
misrepresentation claim for relief, as discussed above, are 
satisfied, and in addition, that the misrepresentation has 
occurred before contract formation.  See Digicorp, Inc. v. 
Ameritech Corp., 2003 WI 54, ¶52, 262 Wis. 2d 32, 662 N.W.2d 
652.   
¶31 Courts have generally taken three different approaches 
in determining whether and to what extent there is a fraud in 
the inducement exception to the economic loss doctrine:  (1) no 
exception; (2) a general exception for all fraud in the 
inducement claims; and (3) a narrow exception for fraud in the 
inducement where the fraud is not interwoven with the quality or 
character of the goods for which the parties contracted or 
otherwise involved performance of the contract.  
¶32 In Huron Tool, the defendant had agreed to provide the 
plaintiff with a computer software system, but the plaintiff 
No. 
2003AP1225   
 
19 
 
later alleged that the system was defective and asserted a 
number of claims against the defendant, including fraud.  Huron 
Tool, 532 N.W.2d at 543.  The Huron Tool decision discussed the 
policy rationale for the economic loss doctrine, explaining that 
the doctrine "encourages parties to negotiate economic risks 
through warranty provisions . . . [and] shield[s] a defendant 
from unlimited liability for all economic consequences of a 
negligent act, . . . thus keeping the risk of liability 
reasonably calculable."  Id. at 545 (citations omitted).  
However, the court held that there was a narrow exception to 
that doctrine for fraud in the inducement.  Id. at 545.   
¶33 Huron Tool defined fraud in the inducement, for the 
purpose of describing it as an exception to the economic loss 
doctrine, as follows:  
Fraud in the inducement presents a special situation 
where parties to a contract appear to negotiate 
freely——which normally would constitute grounds for 
invoking the economic loss doctrine——but where in fact 
the ability of one party to negotiate fair terms and 
make an informed decision is undermined by the other 
party's fraudulent behavior.   
Id.  The court also described a type of misrepresentation that, 
although it could take place before a contract is entered into 
and for the purpose of inducing another to enter into the 
contract, was not included in its conceptualization of the fraud 
in the inducement exception:  "In contrast, where the only 
misrepresentation by the dishonest party concerns the quality or 
character of the goods sold, the other party is still free to 
No. 
2003AP1225   
 
20 
 
negotiate warranty and other terms to account for possible 
defects in the goods."  Id. (emphasis added). 
¶34 The Huron Tool decision characterized the distinction 
between these two types of fraud as that between fraud that is 
"interwoven with the breach of contract," which is barred by the 
economic loss doctrine, and fraud that is "extraneous to the 
contract," which is not barred by that doctrine.  Id.  As to 
fraud that is "interwoven," "the misrepresentations relate to 
the breaching party's performance of the contract and do not 
give rise to an independent cause of action in tort."  Id. 
(emphasis added).   
¶35 The Huron Tool decision concluded that the fraudulent 
representations alleged by the plaintiff concerned the quality 
and 
characteristics 
of 
the 
software 
system 
sold 
by 
the 
defendants.  Id. at 546.  As such, the representations were 
"indistinguishable from the terms of the contract and warranty" 
and thus "fail[ed] to allege any wrongdoing by defendants 
independent of . . . breach of contract and warranty."  Id.  Put 
another way, it was the performance of the contract that was 
really at issue, e.g., whether the product provided met the 
plaintiff's expectations, and thus contract law remedies, not 
tort remedies, were appropriate.  See id. 
¶36 In Wisconsin, federal courts applying Wisconsin law 
have attempted to predict how the Wisconsin Supreme Court would 
rule.  See Cooper Power Sys., Inc. v. Union Carbide Chems. & 
Plastics Co., 123 F.3d 675, 682 (7th Cir. 1997) (predicting that 
Wisconsin would not allow an intentional misrepresentation claim 
No. 
2003AP1225   
 
21 
 
seeking to recover economic damages); Budgetel Inns, Inc. v. 
Micros Sys., Inc., 8 F. Supp. 2d 1137, 1149 (E.D. Wis. 1998) 
(predicting that Wisconsin would provide a general fraud in the 
inducement exception); Raytheon Co. v. McGraw-Edison Co., 979 F. 
Supp. 858, 872 (E.D. Wis. 1997) (predicting that Wisconsin would 
adopt the narrow Huron Tool exception for fraud in the 
inducement claims). 
¶37 Then, in Douglas-Hanson Co. v. BF Goodrich Co., 229 
Wis. 2d 132, 598 N.W.2d 262 (Ct. App. 1999), the court of 
appeals held that there was a general fraud in the inducement 
exception to the economic loss doctrine.  Id. at 137-38 
(concluding that "the economic loss doctrine does not preclude a 
plaintiff's claim for intentional misrepresentation when the 
misrepresentation fraudulently induces a plaintiff to enter into 
the contract"); see also Kailin v. Armstrong, 2002 WI App 70, 
¶30, 252 Wis. 2d 676, 643 N.W.2d 132 (applying the general fraud 
in the inducement exception as articulated in Douglas-Hanson).  
The Douglas-Hanson defendants petitioned this court for review, 
and due to a 3-3 decision by the participating justices, the 
court of appeals decision was affirmed.  Douglas-Hanson Co. v. 
BF Goodrich Co., 2000 WI 22, ¶¶1-2, 233 Wis. 2d 276, 607 N.W.2d 
621.   
¶38 We were subsequently asked to consider the same 
question in Digicorp.  Five justices participated in Digicorp, 
and we again issued a split decision, with Justice Prosser 
joining Justice Crooks' lead opinion, Justice Sykes concurring 
in part and dissenting in part, and Justices Bradley and 
No. 
2003AP1225   
 
22 
 
Bablitch dissenting.  Digicorp, 262 Wis. 2d 32, ¶5 n.2.  
Justices Crooks and Prosser agreed on a Huron Tool-type 
exception, while Justices Bradley and Bablitch stated that the 
Douglas-Hanson general fraud in the inducement exception should 
have been adopted.  Digicorp, 262 Wis. 2d 32, ¶5 n.2.  Justice 
Sykes, however, stated in her dissent that she would not adopt 
any exception to the economic loss doctrine for fraud.  Id.  
Therefore, as the lead opinion summarized, "A majority [held] 
that a fraud in the inducement exception to the economic loss 
doctrine exists, but there [was] an even split as to what the 
fraud in the inducement exception entails."  Id. 
¶39 We were again asked to address whether there was a 
fraud in the inducement exception to the economic loss doctrine 
in Tietsworth.  The Tietsworth plaintiffs alleged that they had 
been fraudulently induced by a motorcycle manufacturer to buy 
motorcycles with defective cam bearing mechanisms.  Tietsworth, 
270 Wis. 2d 146, ¶8. 
¶40 In Tietsworth, we explained that, in Digicorp, "[a] 
majority of the justices participating . . . overruled Douglas-
Hanson to the extent that it recognized a broad exception to the 
economic loss doctrine for all claims of fraud-in-the-inducement 
of a contract."  Tietsworth, 270 Wis. 2d 146, ¶32.  As to the 
Huron Tool-type exception applied in the Digicorp lead opinion, 
we decided that the facts of the Tietsworth case would not 
satisfy such an exception, as the fraud alleged in Tietsworth 
"plainly pertain[ed] to the character and quality of the goods 
that [were] the subject matter of the contract."  Id., ¶35.  
No. 
2003AP1225   
 
23 
 
Therefore, we concluded that the Tietsworth case did not present 
an opportunity for us to determine whether we would recognize a 
Huron Tool-type exception.  Id. 
¶41 In the present case, we again face the question of 
whether we will recognize a fraud in the inducement exception to 
the economic loss doctrine.  Kellogg and Geraci submit that we 
should not adopt an exception, including a Huron Tool-type 
exception.  They argue that an exception would undermine the 
ability of parties to a transaction, and especially parties to a 
commercial transaction, to allocate and protect against risk as 
they see fit.  They argue further that an exception would inject 
the unpredictability and uncertainty of tort law into such 
transactions. 
 
Accordingly, 
Geraci 
asserts, 
"Allowing 
a 
commercial entity to use tort law to obtain rights that its 
contract did not give it would effectively allow it to rewrite 
its 
agreement 
retroactively 
and 
recoup 
unbargained-for 
benefits."   
¶42 We disagree and adopt a narrow fraud in the inducement 
exception, akin to that established in Huron Tool and carefully 
explained by the lead opinion in Digicorp.  Accordingly, we hold 
that a fraud in the inducement claim is not barred by the 
economic loss doctrine "where the fraud is extraneous to, rather 
than interwoven with, the contract."  See Digicorp, 262 Wis. 2d 
32, ¶47; Huron Tool, 532 N.W.2d at 545.  To invoke this narrow 
fraud in the inducement exception where, as here, the failure of 
a party to a business transaction to disclose a fact serves as 
the basis for a fraudulent inducement to contract claim, a 
No. 
2003AP1225   
 
24 
 
plaintiff must show that:  (1) there was an intentional 
misrepresentation, the five elements of which are set out above; 
(2) the misrepresentation occurred before the contract was 
formed, see Digicorp, 262 Wis. 2d 32, ¶52; and (3) "the fraud 
[was] extraneous to, rather than interwoven with, the contract."  
See id., ¶47.  Or stated another way, the fraud concerns matters 
whose risk and responsibility did not relate to the quality or 
the 
characteristics 
of 
the 
goods 
for 
which 
the 
parties 
contracted or otherwise involved performance of the contract.  
See id.; Huron Tool, 532 N.W.2d at 545; see also Raytheon, 979 
F. Supp. at 872 (quoting a Florida appellate court's argument 
that the relevant inquiry is "'the relationship between the 
inducing 
representation 
and 
the 
essential 
requirements, 
expressed or implied, of the contract agreed to by the 
parties'").   
¶43 To further explain, misrepresentations that concern 
"the quality or character of the goods sold," Huron Tool, 532 
N.W.2d at 545, are either:  (1) expressly dealt with in the 
contract's terms, or (2) if they are not dealt with explicitly 
in the contract's terms, they go to reasonable expectations of 
the parties to the risk of loss in the event the goods purchased 
did not meet the purchaser's expectations, see Digicorp, 262 
Wis. 2d 32, ¶47; see also Huron Tool, 532 N.W.2d at 545 
(explaining that "misrepresentations 
[that] 
relate to the 
breaching party's performance of the contract" are interwoven 
with the contract and "do not give rise to an independent cause 
of action in tort"). 
No. 
2003AP1225   
 
25 
 
¶44 Applying this standard to the present case, we have 
already established above, for the purpose of this review, that 
Kaloti has stated a claim for intentional misrepresentation.  
The only disputed aspect of that claim, whether Kellogg and 
Geraci had a duty to disclose, was sufficiently alleged in 
Kaloti's amended complaint.  Therefore, the first element is 
established.  The second element is also established because the 
misrepresentation that Kaloti alleges, that Kellogg and Geraci 
did not inform Kaloti of a change in Kellogg's mode of marketing 
that closed Kaloti's market for reselling the Kellogg products, 
took place before Kaloti entered into the May 14, 2001 contract.   
¶45 Finally, the intentional misrepresentation alleged by 
Kaloti is extraneous to, not interwoven with, the contract.  It 
does not concern Kellogg and Geraci's performance of the 
contract with Kaloti, and it does not regard the quality or 
character of the NutriGrain and Rice Krispie Treat products that 
Kellogg sold Kaloti.  Rather, the alleged misrepresentation 
concerned a matter whose risk was never contemplated to be a 
part of the contract to purchase Kellogg's products.  The fact 
that Kellogg and Geraci allegedly knew that Kellogg's change in 
marketing scheme would largely prevent Kaloti from being able to 
resell the Kellogg products as a secondary supplier, is not a 
matter that was dealt with in the contract, nor would one expect 
it to be dealt with in the contract.   
¶46 Additionally, this limited fraud in the inducement 
exception to the economic loss doctrine serves the policies 
underlying that doctrine.  First, the narrow fraud in the 
No. 
2003AP1225   
 
26 
 
inducement exception applied here maintains the fundamental 
distinction between tort law and contract law.  Matters that are 
expressly or implicitly dealt with in the contract, such as the 
performance or the quality or character of the goods sold, still 
must be addressed by contract law.  See Daanen, 216 Wis. 2d at 
404 (noting that "the individual limited duties implicated by 
the law of contracts arise from the terms of the agreement 
between the particular parties").   
¶47 However, "Wisconsin has a long-standing principle that 
parties need a background of truth and fair dealing in 
commercial relationships." Van Lare, 274 Wis. 2d 631, ¶30.  
Where the matter in question falls outside the contract, courts 
should be able to address a party's failure to act honestly with 
tort law, even if the parties are engaging in a commercial 
transaction.  See Digicorp, 262 Wis. 2d 32, ¶36 (observing that 
"a party engage[ed] in fraud should not be allowed to hide 
behind the protections of the economic loss doctrine"); see also 
Budgetel Inns, Inc. v. Micros Sys., Inc., 34 F. Supp. 2d 720, 
724-25 (E.D. Wis. 1999).   
¶48 Second, the limited fraud in the inducement exception 
adopted today promotes the economic loss doctrine's goal of 
protecting parties' freedom to contract.  As to the terms of the 
contract, as well as those matters that one would expect to be 
addressed in contract terms, parties are expected to negotiate 
and will be held to their agreements, as required by the law of 
contract.  See Daanen, 216 Wis. 2d at 407 ("[I]t is more 
appropriate to enforce [commercial parties'] bargain than to 
No. 
2003AP1225   
 
27 
 
allow an end run around the bargain through tort law." 
(quotation omitted)).   
¶49 Tort law will apply only under circumstances, such as 
the one allegedly before us, where one party induces another to 
enter into a contract by representing (or failing to disclose) a 
fact that would be material to the other party's decision to 
enter into the contract, but that concerns matters extraneous to 
the contract's terms. 
¶50  Finally, the economic loss doctrine is meant to 
encourage "the party with the best understanding of the 
attendant risks of economic loss, the commercial purchaser, to 
assume, allocate, or insure against" such risk.  Daanen, 216 
Wis. 2d at 410.  However, where, as here, the purchaser's risk 
of 
loss 
is 
precipitated 
by 
the 
seller's 
intentional 
misrepresentation prior to execution of the contract, and that 
risk concerns matters extraneous to the contract, it is actually 
the seller who has the best understanding of the attendant risk 
of economic loss.  The purchaser should not be expected to 
assume, allocate or insure against the risk of the seller's 
intentional 
lie 
or 
material 
omission 
in 
these 
limited 
circumstances.  
¶51 For the foregoing reasons, we conclude that a narrow 
fraud in the inducement exception to the economic loss doctrine 
applies in the present case and that, as the allegations made by 
Kaloti satisfy that exception, Kaloti's claim of intentional 
misrepresentation is not barred by the economic loss doctrine.  
 
No. 
2003AP1225   
 
28 
 
III.  CONCLUSION 
¶52 Based solely on Kaloti's allegations, we conclude that 
Kellogg and Geraci had a duty of disclosure that they failed to 
satisfy, thereby providing a basis for Kaloti's intentional 
misrepresentation 
claim, 
and 
that 
Kaloti's 
intentional 
misrepresentation claim is not barred by the economic loss 
doctrine.  Therefore, we reverse the circuit court's decision to 
dismiss Kaloti's amended complaint, and we remand for further 
proceedings.   
By the Court.—The order of the Waukesha County Circuit 
Court is reversed and the cause remanded. 
 
No.  2003AP1225.ssa 
 
1 
 
¶53 SHIRLEY S. ABRAHAMSON, C.J.   (concurring).  I write 
separately for two reasons. 
¶54 First, I write to highlight what is an expansion, 
without full discussion and recognition of its implications, of 
this court's decision in Ollerman v. O'Rourke Co.10  The majority 
opinion in this case extends a duty to disclose to all business 
transactions, well beyond the residential real estate context in 
which a duty was imposed in Ollerman.  The majority opinion also 
extends a duty to disclose in business transactions beyond the 
boundaries set forth in the Restatement (Second) of Torts 
§ 551.11   
                                                 
10 Ollerman v. O'Rourke Co., 94 Wis. 2d 17, 288 N.W.2d 95 
(1980). 
11 Restatement (Second) of Torts § 551 (1977) provides as 
follows: 
§ 551.  Liability for Nondisclosure 
(1) One who fails to disclose to another a fact that 
he knows may justifiably induce the other to act or 
refrain from acting in a business transaction is 
subject to the same liability to the other as though 
he had represented the nonexistence of the matter that 
he has failed to disclose, if, but only if, he is 
under a duty to the other to exercise reasonable care 
to disclose the matter in question. 
(2) One party to a business transaction is under a 
duty to exercise reasonable care to disclose to the 
other before the transaction is consummated, 
(a) matters known to him that the other is entitled 
to know because of a fiduciary or other similar 
relation of trust and confidence between them; and 
(b) matters known to him that he knows to be 
necessary 
to 
prevent 
his 
partial 
or 
ambiguous 
statement of the facts from being misleading; and 
No.  2003AP1225.ssa 
 
2 
 
¶55 Second, I write to state that although I agree with 
the majority opinion's bottom line that the economic loss 
doctrine should not bar Kaloti's intentional misrepresentation 
tort claim against Kellogg and Geraci, I disagree with the 
majority opinion's rationale and its adoption of "a narrow fraud 
in the inducement exception" like that established in the 
Michigan Huron Tool case12 and explained in the lead opinion in 
Digicorp.13   
¶56 For many years Wisconsin law has recognized that one 
who intentionally deceives another with the intent and effect of 
inducing reliance to the other's detriment will be liable in 
tort.14  "Yet the economic loss doctrine, in its more aggressive 
                                                                                                                                                             
(c) subsequently acquired information that he knows 
will 
make 
untrue 
or 
misleading 
a 
previous 
representation that when made was true or believed to 
be so; and 
(d) the falsity of a representation not made with the 
expectation that it would be acted upon, if he 
subsequently learns that the other is about to act in 
reliance upon it in a transaction with him; and 
(e) facts basic to the transaction, if he knows that 
the other is about to enter into it under a mistake as 
to 
them, 
and 
that 
the 
other, 
because 
of 
the 
relationship between them, the customs of the trade or 
other objective circumstances, would reasonably expect 
a disclosure of those facts. 
12 Huron Tool & Eng'g Co. v. Precision Consulting Servs., 
Inc., 532 N.W.2d 541 (Mich. Ct. App. 1995). 
13 Digicorp, Inc. v. Ameritech Corp., 2003 WI 54, ¶91, 262 
Wis. 2d 32, 662 N.W.2d 652.  
14 See Cotzhausen v. Simon, 47 Wis. 103, 106, 1 N.W. 473 
(1879); Restatement of Torts §§ 525, 549 (1938); Restatement 
(Second) of Torts §§ 525, 549 (1977). 
No.  2003AP1225.ssa 
 
3 
 
tort-devouring 
strains, 
[is 
being 
held] 
to 
trump 
this 
fundamental common law precept."15  Fraud is fraud and if proved 
is a good tort claim.  In principle or in practice, the Huron 
Tool fraud exception to the economic loss doctrine just doesn't 
work.      
I 
¶57 The majority opinion imposes a duty to disclose in 
business transactions that is well beyond the residential real 
estate context in which a duty to disclose was imposed in the 
Ollerman case and is well beyond our caselaw.  The majority 
opinion also imposes a duty to disclose in business transactions 
beyond the boundaries set forth in the Restatement (Second) of 
Torts § 551.  
¶58 The general, traditional common law rule, recognized 
in Wisconsin, is that in misrepresentation claims, absent a duty 
to disclose, there will be no tort liability for the failure to 
disclose.16  "[S]ilence, a failure to disclose a fact, is not an 
intentional misrepresentation unless the seller has a duty to 
disclose."17  If there is a duty to disclose a fact, a party's 
failure to disclose is treated in the law as the equivalent of 
                                                 
15 Paul J. Schwiep, The Economic Loss Rule Outbreak: The 
Monster That Ate Commercial Torts, Fla. B.J., Nov. 1995, at 34, 
36. 
16 Lecic v. Lane Co., 104 Wis. 2d 592, 604, 312 N.W.2d 773 
(1981); Southard v. Occidental Life Ins. Co., 31 Wis. 2d 351, 
359, 142 N.W.2d 844 (1966). 
17 Ollerman, 94 Wis. 2d at 26 (citing Restatement (Second) 
of Torts § 551, cmt. b (1977)). 
No.  2003AP1225.ssa 
 
4 
 
an affirmative misrepresentation of the nonexistence of the 
fact.18 
¶59 In Ollerman, this court declared that "a subdivider-
vendor of a residential lot has a duty to a 'non-commercial' 
purchaser to disclose facts which are known to the vendor, which 
are material to the transaction, and which are not readily 
discernible to the purchaser."19  Ollerman involved a residential 
real estate transaction between a sophisticated seller and an 
unsophisticated buyer new to the area.20  The buyer made an offer 
to purchase a vacant lot on which the buyer planned to build a 
residence, 
and 
the 
seller, 
a 
real 
estate 
development 
corporation, knew that an underground well was on the property 
but failed to disclose that information to the buyer.  When the 
excavation started, the well was uncapped and water released.  
The released water added costs to the construction of the 
residence and caused other damage.  The buyer sued for 
intentional misrepresentation; the defendant argued that it had 
no duty to disclose the existence of the well on the property. 
¶60 The 
court 
in 
Ollerman 
discussed 
§ 551 
of 
the 
Restatement (Second) of Torts as the embodiment of several 
situations in which courts, at the time of adoption of the 
Restatement 
(Second) 
in 
1976, 
were 
withdrawing 
from 
the 
traditional rule of caveat emptor (let the buyer beware).  
Ollerman concluded that subsection (1) of § 551 restated the 
                                                 
18 Ollerman, 94 Wis. 2d at 26. 
19 Id. at 42. 
20 Id. at 21. 
No.  2003AP1225.ssa 
 
5 
 
traditional rule "that one who fails to disclose a fact that he 
knows may induce reliance in a business transaction is subject 
to the same liability as if he had represented the nonexistence 
of the matter that he failed to disclose if, and only if, he is 
under a duty to exercise reasonable care to disclose the matter 
in question."21 
¶61 The Ollerman court then discussed subsection (2) of 
§ 551 of the Restatement (Second) of Torts setting forth the 
conditions under which a seller has a duty to disclose certain 
information.22  The court was careful to highlight subsection 
(2)(e), noting that the provision "states that a party to a 
transaction is under a duty to exercise reasonable care to 
disclose to the other 'facts basic to the transaction, if he 
knows that the other is about to enter into it under a mistake 
as to them, and that the other, because of the relationship 
between them, the customs of the trade or other objective 
circumstances, would reasonably expect a disclosure of those 
facts.'"23  The Ollerman court acknowledged that this provision 
                                                 
21 Id. at 36. 
22 Id.  
23 Id. at 37 (emphasis added), quoting Restatement (Second) 
of Torts § 551(2)(e), which provides as follows: 
(2) One party to a business transaction is under a 
duty to exercise reasonable care to disclose to the 
other before the transaction is consummated, 
. . . . 
(e) facts basic to the transaction, if he knows that 
the other is about to enter into it under a mistake as 
to 
them, 
and 
that 
the 
other, 
because 
of 
the 
No.  2003AP1225.ssa 
 
6 
 
was limited to disclosure of "basic facts" to the transaction 
and that the Restatement differentiated between "basic" facts 
and "material" facts as follows: 
A basic fact is a fact that is assumed by the parties 
as a basis for the transaction itself.  It is a fact 
that 
goes 
to 
the 
basis, 
or 
essence, 
of 
the 
transaction, and is an important part of the substance 
of what is bargained for or dealt with.  Other facts 
may serve as important and persuasive inducements to 
enter into the transaction, but not go to its essence.  
These facts may be material, but they are not basic.24 
¶62 The Ollerman court expanded § 551(2)(e) to encompass a 
duty on the part of a sophisticated real estate vendor selling 
to an unsophisticated consumer to disclose material facts, 
writing: 
Where the vendor is in the real estate business and is 
skilled and knowledgeable and the purchaser is not, 
the purchaser is in a poor position to discover a 
condition which is not readily discernible, and the 
purchaser may justifiably rely on the knowledge and 
skill of the vendor.  Thus, in the instant case a 
strong argument for imposing a duty on the seller to 
                                                                                                                                                             
relationship between them, the customs of the trade or 
other objective circumstances, would reasonably expect 
a disclosure of those facts. 
At least one court of appeals decision, although citing 
Ollerman for support, applied the "basic" facts standard of this 
subsection in an employment setting.  See Hennig v. Ahearn, 230 
Wis. 2d 149, 601 N.W.2d 14 (Ct. App. 1999) (applying Restatement 
(Second) of Torts § 551(2)(e) to impose a duty on a party to a 
business transaction to disclose a "significant, last-minute 
revision" that greatly reduced Hennig's compensation under an 
executive compensation agreement because given the course of 
dealing between the parties, Hennig could have reasonably 
expected the disclosure of a revision of a basic term of the 
contract).  
24 Ollerman, 94 Wis. 2d at 38 (citing Restatement (Second) 
of Torts § 551, cmt. j). 
No.  2003AP1225.ssa 
 
7 
 
disclose material facts is this "reliance factor."  
The buyer portrayed in this complaint had a reasonable 
expectation of honesty in the marketplace, that is, 
that the vendor would disclose material facts which it 
knew and which were not readily discernible.  Under 
these circumstances the law should impose a duty of 
honesty [disclosure] on the seller.25 
 
¶63 Based on the existence of the duty to disclose in the 
narrow circumstances presented by Ollerman, the court allowed 
the buyer's intentional misrepresentation claim to go forward. 
 
¶64 Ollerman represents an expansion of the duty to 
disclose under the circumstances, in that case, of a consumer 
sale, from "[t]he traditional legal rule that there is no duty 
to disclose in an arm's-length transaction [which] is part of 
the common law doctrine of caveat emptor . . . ."26  Ollerman 
also represents an expansion of § 551(2)(e) in imposing a duty 
to disclose material facts instead of just basic facts. 
¶65 Ollerman itself specified that it was a "narrow 
holding," and in 2004 in Tietsworth v. Harley-Davidson, Inc., 
which involved the sale of motorcycles, the court reiterated 
that Ollerman was a "'narrow holding,' premised on certain 
policy considerations present in non-commercial real estate 
transactions."27  In fact, the Tietsworth court explained that 
"it is an open question whether the duty to disclose recognized 
                                                 
25 Id. at 41-42. 
26 Id. at 29.  "Under the doctrine of caveat emptor no 
person was required to tell all that he or she knew in a 
business transaction, for in a free market the diligent should 
not 
be 
deprived 
of 
the 
fruits 
of 
superior 
skill 
and 
knowledge . . . ."  Id. at 30. 
27 Tietsworth v. Harley-Davidson, Inc., 2004 WI 32, ¶14, 270 
Wis. 2d 146, 677 N.W.2d 233. 
No.  2003AP1225.ssa 
 
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in Ollerman extends more broadly to sales of consumer goods.  
This is a significant common-law policy issue."28 
¶66 I have attempted to examine numerous cases citing 
Ollerman.  Most of the cases involve real estate.  In commercial 
real estate transactions, sometimes the court declares a duty to 
disclose and sometimes not.29  Other than in the instant case, 
                                                 
28 Tietsworth, 270 Wis. 2d 142, ¶15 (declining to resolve 
the issue because the parties did not brief the issue of whether 
to extend Ollerman). 
29 See, e.g., Lundin v. Shimanski, 124 Wis. 2d 175, 368 
N.W.2d 676 (1985) (duty found in real estate transaction where 
real estate agency misrepresented to the buyer that the house 
was suitable for use as a rental property); Kailin v. Armstrong, 
2002 WI App 70, 252 Wis. 2d 676, 643 N.W.2d 132 (duty imposed in 
commercial real estate transaction; vendor did not disclose that 
a tenant in the building being sold has a history of delinquent 
rent payments and was in default); Ramsden v. Farm Credit Servs. 
of N. Cent. Wis. ACA, 223 Wis. 2d 704, 590 N.W.2d 1 (Ct. App. 
1998) (duty found in commercial real estate; misrepresentations 
about availability of clean water on an auctioned dairy farm); 
Grube v. Daun, 173 Wis. 2d 30, 496 N.W.2d 106 (Ct. App. 1992) 
(duty imposed in the commercial purchase of farm buildings based 
on affirmative misrepresentations despite an "as is" clause); 
Green Springs Farms v. Spring Green Farm Assoc. Ltd. P'ship, 172 
Wis. 2d 28, 492 N.W.2d 392 (Ct. App. 1992) (duty imposed in 
commercial real estate transaction in which vendor failed to 
disclose salmonella contamination on the chicken farm being 
sold); Ritchie v. Clappier, 109 Wis. 2d 399, 326 N.W.2d 131 (Ct. 
App. 1982) (no duty found in commercial lease context, and even 
if 
there 
was, 
plaintiff 
did 
not 
justifiably 
rely 
on 
representations about quit claim deed).   
No.  2003AP1225.ssa 
 
9 
 
Ollerman has not been used, as far as I can tell, to extend a 
duty to disclose material facts outside of the real estate 
context. 
¶67 At least two federal courts interpreting Wisconsin law 
have 
rejected 
the 
application 
of 
Ollerman 
to 
commercial 
transactions between businesses.  
 
¶68 The Seventh Circuit Court of Appeals declined to 
impose a duty in the context of negligent misrepresentation in 
Badger Pharmacal, Inc. v. Colgate-Palmolive Co.30  The court 
wrote: "When two corporations, with the benefit of counsel, 
negotiate a commercial transaction at arms length, neither owes 
nor assumes a duty to disclose information to the other."31 
                                                                                                                                                             
The court of appeals has dealt with the duty issue in 
numerous unpublished opinions.  See, e.g., Fulton v. Vogt, No. 
1996AP1972, unpublished slip op. (Wis. Ct. App. June 16, 1998) 
(no duty because property sold "as is" and no affirmative 
misrepresentations; commercial real estate purchase of farm land 
to be used for construction of self-storage facility); Hlavna v. 
United Bank, No. 1986AP535, unpublished slip op. (Wis. Ct. App. 
Oct. 
16, 
1986) 
(duty 
imposed 
in 
commercial 
real 
estate 
transaction; dissent notes that "[t]he majority has used a 
howitzer to kill an ant."); Luebke v. Marine Nat'l Bank, No. 
1983AP161, unpublished slip op. (Wis. Ct. App. Sept. 27, 1983) 
(duty to disclose problems with manufacturing plant; court of 
appeals declined to address whether Ollerman should be extended 
to commercial real estate transaction); Smith v. Moore, No. 
1982AP1522, unpublished slip op. (Wis. Ct. App. July 8, 1983) 
(no duty to disclose in commercial property sale because builder 
could not have discovered alleged defect); County of Manitowoc 
v. Eis, No. 1980AP1824, unpublished slip op. (Wis. Ct. App. July 
8, 1981) (no duty to disclose in county's option of real estate 
because the parties were in an arm's length transaction).   
30 Badger Pharmacal, Inc. v. Colgate-Palmolive Co., 1 F.3d 
621 (7th Cir. 1993). 
31 Badger Pharmacal, 1 F.3d at 627 (citing Ollerman, 94 
Wis. 2d at 29-30). 
No.  2003AP1225.ssa 
 
10 
 
¶69 Recently, in Fleming Cos., Inc. v. Krist Oil Co., the 
district court, quoting Ollerman, declared that the parties to a 
business transaction are to "use their faculties and exercise 
ordinary business sense" and "not call on the law to stand in 
loco parentis to protect them in their ordinary dealings with 
other business people."32 
¶70 As I see it, the majority's holding extends beyond the 
facts in the instant case to impose a duty on parties in 
commercial transactions to disclose material facts under certain 
circumstances.  Specifically, the majority holds: 
[A] party to a business transaction has a duty to 
disclose a fact where: (1) the fact is material to the 
transaction; (2) the party with knowledge of that fact 
knows that the other party is about to enter into the 
transaction under a mistake as to the fact; (3) the 
fact 
is 
peculiarly 
and 
exclusively 
within 
the 
knowledge of one party, and the mistaken party could 
not reasonably be expected to discover it; and (4) on 
account of the objective circumstances, the mistaken 
party would reasonably expect disclosure of the fact.33  
¶71 I conclude that based on the facts before us, the 
instant case may be shoehorned into the duty to disclose set 
forth in Restatement (Second) of Torts § 551(2)(e) and that it 
                                                 
32 Fleming Cos., Inc. v. Krist Oil Co., 324 F. Supp. 2d 933, 
946 (W.D. Wis. 2004). 
33 Majority op., ¶20.  The majority opinion does not adopt 
the Restatement (Second) of Torts § 551(2)(e), which imposes a 
duty to disclose "basic" facts in certain business settings.  
The majority opinion applies Ollerman's expanded duty to 
disclose "material" facts.  
No.  2003AP1225.ssa 
 
11 
 
is not necessary to extend the duty to disclose beyond the 
Restatement.34 
¶72 For those who favor more disclosure in business 
transactions rather than less, the majority opinion's expansion 
of 
the 
duty 
to 
disclose 
material 
facts 
in 
commercial 
transactions will be welcome news.  As we said in Ollerman, over 
the years society's attitudes toward good faith and fair dealing 
in business transactions have undergone (and continue to 
undergo) significant change from the traditional caveat emptor 
rule, and this change is reflected in the law.35   
II 
¶73 Accepting that Kellogg had a duty to disclose its 
change in marketing, I conclude that fraud in the inducement 
does not fall within the economic loss doctrine.  I would adopt 
a rule that the tort action of fraud is outside the reach of the 
economic loss doctrine.  A rule that actionable fraud precludes 
application of the economic loss doctrine makes it easy for 
defendants to foresee that they will be liable for material 
representations. 
¶74 I depart from the majority opinion because it adopts a 
"narrow fraud rule," which, as I view it, defies consistent and 
principled application.  After all, how can parties allocate, 
insure against, or otherwise assess risk attendant to a 
contract, all goals the economic loss doctrine strives to 
                                                 
34 The duty to disclose is a question of law rooted in 
policy consideration.  Ollerman, 94 Wis. 2d at 27-28. 
35 Ollerman, 94 Wis. 2d at 30. 
No.  2003AP1225.ssa 
 
12 
 
foster, when one party is intentionally misled by affirmative 
misrepresentations or by a breach of a duty to disclose material 
facts by another party?36  Everyone knows the common sense 
answer: they can't.  
¶75 A tort remedy should be available when the tortious 
conduct harms commerce.  A fraud action advances the public 
interest in deterring misrepresentations.  Not only do the 
parties want a transaction free of fraud, but the State has an 
interest 
in 
ensuring 
a 
fraud- 
and 
deceit-free 
business 
atmosphere.  If fraud claims are enforced, parties will be more 
confident in the terms of the contracts into which they enter.37  
In a valid fraud action for intentional misrepresentation, we 
have less concern about the cost and uniformity of contractual 
relationships and extended liability for the manufacturer.  
¶76 As I stated in my dissent in Tietsworth:  
Allowing a fraud in the inducement exception to the 
economic loss rule for intentional false statements 
made prior to a contract in a consumer purchase 
preserves a distinction between tort law and contract 
law and fosters the values of each.  It maintains the 
value of contract by ensuring that consumers are in a 
position to make intelligent decisions in allocating 
the risk of loss, thereby increasing the likelihood 
that losses can be resolved in contract.  It furthers 
the purposes of tort law by sustaining a financial 
                                                 
36 Alternatively, as one court has articulated: "How can 
parties freely allocate risk if they cannot rely on the opposite 
party to speak truthfully during negotiations regarding the 
subject matter of the contract——if they cannot tell what is a 
lie and what is not?"  Budgetel Inns, Inc. v. Micros Sys., Inc., 
8 F. Supp. 2d 1137, 1148 (E.D. Wis. 1998). 
37 Robinson Helicopter Co., Inc. v. Dana Corp., 102 P.3d 
268, 275 (Cal. 2004). 
No.  2003AP1225.ssa 
 
13 
 
deterrent for those who intentionally misrepresent 
their goods. 
A fraud in the inducement exception to the economic 
loss rule for intentional false statements made to 
consumers is founded on the tort of intentional 
misrepresentation, a tort action protecting intangible 
economic interests.  This tort action is separate and 
distinct from the duty created solely by contract.  
"[T]he interest protected by fraud is a plaintiff's 
right 
to 
justifiably 
rely 
on 
the 
truth 
of 
a 
defendant's factual representation in a situation 
where an intentional lie would result in loss to the 
plaintiff."  An overextension of the economic loss 
rule drowns fraudulent misrepresentation claims in a 
sea of contract.  
What kind of "freedom of contract" and "ability to 
assess and insure against the risk" is being fostered 
or protected when a party to a contract commits an 
intentional tort in inducing a contract that causes 
monetary loss to another party?  On what basis can we 
say that an individual consumer does not need the tort 
remedy of intentional misrepresentation against a 
manufacturer?38  
¶77 The California Supreme Court recently acknowledged 
that it is impossible for parties to allocate risk when fraud is 
involved: 
A breach of contract remedy assumes that the parties 
to 
a 
contract 
can 
negotiate 
the 
risk 
of 
loss 
occasioned by a breach.  "[W]hen two parties make a 
contract, they agree upon the rules and regulations 
which 
will govern 
their 
relationship; 
the 
risks 
inherent in the agreement and the likelihood of its 
breach.  The parties to the contract in essence create 
a 
mini-universe 
for 
themselves, 
in 
which 
each 
voluntarily chooses his contracting partner, each 
trusts the other's willingness to keep his word and 
honor his commitments, and in which they define their 
respective obligations, rewards and risks. Under such 
a scenario, it is appropriate to enforce only such 
obligations as each party voluntarily assumed, and to 
                                                 
38 Tietsworth, 270 Wis. 2d 146, ¶¶69-71 (Abrahamson, C.J., 
dissenting) (citation omitted). 
No.  2003AP1225.ssa 
 
14 
 
give him only such benefits as he expected to receive; 
this is the function of contract law."39 
¶78 Not only is the Huron Tool fraud rule deficient as a 
matter of principle, it is inherently defective because it 
cannot be applied in a principled way.  The fraud rule with 
which the majority opinion is enamored is as follows: If the 
fraud is "extraneous" to the contract, the economic loss 
doctrine will not bar the plaintiff's tort claims.  If the fraud 
is "interwoven" with the contract, the economic loss doctrine 
applies to bar the plaintiff's tort suit.40   
¶79 Judges 
cannot 
agree 
about 
the 
meaning 
or 
the 
application of the Huron Tool fraud exception.  "Critics contend 
that the exception is dead on arrival because almost all 
actionable 
misrepresentations 
will 
deal 
with 
the contract 
matter, and thus be 'interwoven,' for purposes of the Huron Tool 
exception and therefore, barred by the economic loss doctrine."41  
The Huron Tool rule "renders the fraud in the inducement 
                                                 
39 Robinson Helicopter Co., 102 P.3d at 275 (quoting Applied 
Equip. Corp. v. Litton Saudi Arabia Ltd., 869 P.2d 454 (Cal. 
1994)). 
40 Majority op., ¶42.  Fraud that is "interwoven" "relate[s] 
to the breaching party's performance of the contract and do[es] 
not give rise to an independent cause of action in tort."  
Majority op., ¶34 (citing Huron Tool, 532 N.W.2d at 545).  For 
the fraud to be "extraneous to the contract" it must be 
"[distinguishable] from the terms of the contract and warranty."  
Majority op., ¶35 (citing Huron Tool, 532 N.W.2d at 546). 
41 John J. Laubmeier, Demystifying Wisconsin's Economic Loss 
Doctrine, 2005 Wis. L. Rev. 225, 239-240 (citing Budgetel Inns, 
8 F. Supp. 2d at 1146). 
No.  2003AP1225.ssa 
 
15 
 
exception a nullity" as this limitation "is so broad that it 
swallows the exception whole."42 
¶80 As one court noted: 
In all fraud in the inducement cases the alleged 
fraudulent misrepresentations will either concern the 
quality and characteristics of the underlying subject 
matter, because that is the definition of "fraud in 
the inducement itself." . . . Because the contract 
concerning the "particular thing" will always be 
considered "interwoven" with the deceit under Huron, 
fraud in the inducement claims will always be barred.  
The tort, after all, is inducing someone to enter into 
a contract, so to say it does not apply where the tort 
involves 
the 
contract 
or 
its 
subject 
matter 
analytically makes no sense.43 
¶81 In applying the Huron Tool rule to the instant case, I 
conclude that Kellogg's fraudulent misrepresentations can easily 
be classified as either extraneous or interwoven.44  
¶82 The majority opinion concludes that Kellogg's change 
in marketing strategy was "extraneous to" the contract.  Why?  
Because the fraud did "not regard the quality or character of 
the NutriGrain and Rice Krispie Treat products that Kellogg sold 
to Kaloti."45  Furthermore, the "alleged misrepresentation 
                                                 
42 Budgetel Inns, 8 F. Supp. 2d at 1146.  
43 Id. at 1147. 
44 How can one possibly know in the instant case whether the 
fraudulent misrepresentations were interwoven with the contract?  
The contract is not part of this record.  I would think a court 
would need to read the contract to know what is interwoven with 
it and take testimony about the contract from the parties to 
determine what matters are interwoven with or extraneous to the 
contract.  To boldly assert, as the majority opinion does, what 
the contract does and does not provide is puzzling. 
45 Majority op., ¶45. 
No.  2003AP1225.ssa 
 
16 
 
concerned a matter whose risk was never contemplated to be a 
part of the contract to purchase Kellogg's products."46  Under 
the approach the majority opinion takes, marketing has nothing 
to do with the parties' sale and purchase of the products, so 
the fraud is extraneous to the contract and the economic loss 
doctrine does not apply. 
¶83 An alternative view of the instant case applying Huron 
Tool is that Kellogg's marketing strategy is interwoven with the 
contract.  When Kaloti agreed to purchase the products from 
Kellogg, Kaloti thought it was buying a product Kaloti could 
sell to stores (as it had in the past) and that Kellogg would 
continue its marketing practices so as not to interfere with 
Kaloti's resale of the products purchased.  Kellogg's change in 
marketing 
related 
to 
the 
performance 
of 
the 
contract; 
performance of the contract is generally viewed as interwoven 
with the contract.   
¶84 To help determine how central Kaloti's ability to sell 
the product was to the contract, imagine that during contract 
negotiations the alleged fraudulently omitted information was 
disclosed.  Here is how the conversation might have gone: 
Kaloti: I'd like to order $124,000 in tasty treats for 
the upcoming quarter for sale to the stores to which 
you know I sell. 
Geraci/Kellogg: Sure, no problem.  Just send in your 
check.  We'll ship the product right away. 
Kaloti: Thanks.  Talk to you next quarter. 
                                                 
46 Majority op., ¶45. 
No.  2003AP1225.ssa 
 
17 
 
Geraci/Kellogg: Oh wait, one more thing.  We're aware 
you sell the treats to various large stores, but 
Kellogg and Keebler just merged and we're going to 
sell the exact same product you sell to the exact same 
large stores to which you already sell.  The market to 
which you have sold in the past is now probably 
closed.  We are not sure where you will sell that 
$124,000 in tasty treats.  
Kaloti: Uh . . . . 
 
¶85 How would Kaloti respond?  "No problem!"  Or, "What 
are you smoking?"  Or, "How much weight do you think I'll gain 
if I have to eat them all myself?"  Or, "No deal!" 
¶86 These are perishable products.  I am confident that 
Kaloti would not have agreed to purchase the products at all, or 
at least not for the same amount of money, knowing that it might 
not be able to sell the product.  Quite simply, the ability to 
sell a product is interwoven with the commercial purchase of 
that product for resale, especially as here given the parties' 
pattern of dealing.47   
¶87 Because the Huron Tool exception does not further the 
policies justifying the existence of the economic loss doctrine 
and cannot be applied in a principled way, I do not join the 
majority in adopting this exception.  I would say fraud is fraud 
and a tort action lies when the elements of fraud are proved in 
a commercial contractual setting.  In the instant case a fraud 
action lies, and I therefore concur. 
¶88 For the reasons set forth, I concur. 
¶89 I am authorized to state that Justices ANN WALSH 
BRADLEY and LOUIS B. BUTLER, JR. join this opinion. 
                                                 
47 Budgetel Inns, 8 F. Supp. 2d at 1147. 
No.  2003AP1225.ssa 
 
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No.  2003AP1225.ssa 
 
1