Title: Steven J. Wickenhauser v. Jack Lehtinen
Citation: 2007 WI 82
Docket Number: 2004AP002681
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: June 29, 2007

2007 WI 82 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2004AP2681 
COMPLETE TITLE: 
 
 
Steven J. Wickenhauser and Christy K. 
Wickenhauser, 
          Plaintiffs-Respondents-Petitioners, 
     v. 
Jack Lehtinen and Carolyn Lehtinen, 
          Defendants-Appellants, 
Joseph Nielsen and Sharon Nielsen, 
          Defendants. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at:  289 Wis. 2d 549, 710 N.W.2d 725 
(Ct. App. 2006-Unpublished) 
 
 
OPINION FILED: 
June 29, 2007   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
February 13, 2007   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
St. Croix   
 
JUDGE: 
Eric J. Lundell   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
ABRAHAMSON, C.J., concurs (opinion filed). 
BRADLEY and BUTLER, Jr., JJ., join concurrence.   
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For the plaintiffs-respondents there were briefs by Timothy 
J. O’Brien and Bakke Norman, S.C., New Richmond, and oral 
argument by Timothy J. O’Brien. 
 
For the defendants-appellants there was a brief by Steven 
L. Miller and Miller & Miller, River Falls, and oral argument by 
Steven L. Miller. 
 
 
2007 WI 82
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2004AP2681  
(L.C. No. 
2001CV165) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Steven J. Wickenhauser and Christy K. 
Wickenhauser, 
 
          Plaintiffs-Respondents-Petitioners, 
 
     v. 
 
Jack Lehtinen and Carolyn Lehtinen, 
 
          Defendants-Appellants, 
 
Joseph Nielsen and Sharon Nielsen, 
 
          Defendants. 
 
FILED 
 
JUN 29, 2007 
 
David R. Schanker 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed and 
cause remanded.   
 
¶1 
PATIENCE DRAKE ROGGENSACK, J.   This is a review of an 
unpublished per curiam decision of the court of appeals that 
reversed the circuit court's judgment1 awarding Steven and 
Christy 
Wickenhauser 
(the 
Wickenhausers) 
compensatory 
and 
punitive damages and denying Jack Lehtinen's (Lehtinen) motions 
                                                 
1 The Honorable Eric J. Lundell, Circuit Court Judge for St. 
Croix County, presided. 
No. 
2004AP2681   
 
2 
 
for summary judgment based on claim preclusion.  The court of 
appeals 
reasoned 
that 
since 
the 
Wickenhausers 
obtained 
rescission of an option to purchase 300 acres of their property 
in a prior action, they were barred by the election of remedies 
doctrine from obtaining damages in this action.  Wickenhauser v. 
Lehtinen, No. 2004AP2681, unpublished slip op., ¶1 (Wis. Ct. 
App. Jan. 10, 2006). 
¶2 
We conclude that the election of remedies doctrine 
does not bar the Wickenhausers from obtaining damages in this 
action because rescission of the option in the prior action is 
consistent with the subsequent award of damages.  In addition, 
their claim in this action is not barred by claim preclusion, 
nor did the common-law compulsory counterclaim rule require the 
Wickenhausers to bring their claim for damages as a counterclaim 
in the first action.  Furthermore, the fraud in the inducement 
exception to the economic loss doctrine is consistent with our 
holding.  However, we do not address several alternative 
arguments raised by Lehtinen to the court of appeals because 
they were not brought before us for consideration.  Accordingly, 
we reverse the court of appeals determination and remand to the 
court of appeals for further proceedings consistent with this 
opinion. 
I.  BACKGROUND 
¶3 
The Wickenhausers and Wickenhauser Farms, Inc. own and 
operate a dairy farm outside of New Richmond, Wisconsin, in St. 
Croix County.  The original farm parcel consists of 146 acres, 
the Wickenhausers' residence and buildings related to their 
No. 
2004AP2681   
 
3 
 
farming operation.  On August 29, 1997, the Wickenhausers 
purchased 300 additional acres from Thomas Burow (Burow).  At 
that time, the Wickenhausers used Bison Financial's services in 
an attempt to secure additional financing to consolidate debt 
and fund the expansion of their farm operation.  Bison Financial 
was 
not 
able 
to 
secure 
a 
financing 
package 
for 
the 
Wickenhausers, but it did introduce the Wickenhausers to 
Lehtinen, a retired dentist who frequently invested in real 
estate.   
¶4 
The Wickenhausers and Lehtinen entered into a series 
of transactions where Lehtinen loaned money or paid bills on the 
Wickenhausers' behalf.  On September 10, 1997, the Wickenhausers 
borrowed $130,000 from Lehtinen, which was secured by a mortgage 
on the 300-acre parcel the Wickenhausers purchased from Burow.  
Another loan was made by Lehtinen in December 1997, when he 
provided $66,000 to the Wickenhausers, which also was secured by 
a mortgage on the 300-acre parcel.   
¶5 
Lehtinen presented the Wickenhausers with an option 
that he asked the Wickenhausers to sign, which gave Lehtinen a 
three-year right to purchase the entire 300-acre parcel for 
$300,000.  Lehtinen contended that in exchange for the $66,000 
loan, together with his promise to secure an additional loan of 
$200,000 from his friends Joseph and Sharon Nielsen (the 
Nielsens), the Wickenhausers agreed to make Lehtinen one-half 
owner of the 300-acre parcel.  However, the Wickenhausers 
believed that Lehtinen wanted the option only to show the 
Nielsens that there was sufficient security for their loan and 
No. 
2004AP2681   
 
4 
 
as protection for Lehtinen's loans, if the Wickenhausers 
defaulted or went bankrupt.  Lehtinen told the Wickenhausers 
that he would not record the option.   
¶6 
In November 2000, Lehtinen claimed he owned a one-half 
interest in the 300-acre parcel and asked the Wickenhausers to 
sign a quit claim deed conveying him that interest.  The 
Wickenhausers refused.  In December 2000, based on previous 
loans, Lehtinen attempted to exercise the option to purchase the 
entire 
300-acre 
parcel, 
which 
he 
had 
recorded, 
but 
the 
Wickenhausers refused to convey the property.  On March 28, 
2001, Lehtinen filed an action against the Wickenhausers (the 
first action) wherein he sought enforcement of the option to 
purchase the 300-acre parcel. 
¶7 
The Wickenhausers filed an answer in the first action, 
asserting, as an affirmative defense, that Lehtinen fraudulently 
induced them to sign the option.  The Wickenhausers did not 
counterclaim for damages in the first action.  On April 16, 
2001, the Wickenhausers commenced this action, seeking to quiet 
title to the 300-acre parcel in their names and damages arising 
from the fraudulent misrepresentations Lehtinen made to induce 
them to sign the option.   
¶8 
On 
June 11, 
2001, 
the 
Wickenhausers 
moved 
to 
consolidate the actions, but their motion was denied.  On 
July 27, the Wickenhausers filed an amended answer in the first 
action providing more detail about the fraud allegations, but 
they did not counterclaim for damages.   
No. 
2004AP2681   
 
5 
 
¶9 
After testimony had concluded in the first action, the 
court asked the parties to submit proposed findings of fact, 
conclusions of law and judgments.  In September 2001, the court 
adopted the Wickenhausers' document without modification.  The 
court found that the Wickenhausers did not agree to grant 
Lehtinen an ownership interest in the 300-acre parcel.  The 
judgment also rescinded the option for these reasons:  (1) it 
was void for lack of consideration; (2) Lehtinen made material 
misrepresentations to the Wickenhausers and the Wickenhausers 
reasonably relied on the misrepresentations to their detriment; 
and (3) Lehtinen was acting as a dual agent at the time he 
induced the Wickenhausers to sign the option.   
¶10 In this action, the Wickenhausers moved to apply issue 
preclusion to Lehtinen's defenses to their allegations of 
misrepresentation 
and 
liability, 
asserting 
that 
Lehtinen's 
misrepresentation had been decided in their favor in the first 
action; and therefore, Lehtinen could not deny liability in this 
action.  Lehtinen moved to dismiss this action based on claim 
preclusion and the election of remedies doctrine.  He asserted 
that the Wickenhausers were precluded from claiming damages in 
this action because they were granted rescission in the first 
action.   
¶11 The 
circuit 
court 
applied 
issue 
preclusion 
to 
Lehtinen's defenses to the allegations of misrepresentation and 
liability, and it also denied Lehtinen's motion to apply claim 
preclusion to the Wickenhausers' claim in this action.  The 
circuit court did so because it concluded that there are no 
No. 
2004AP2681   
 
6 
 
compulsory counterclaims in Wisconsin.  The circuit court 
recognized that the Wickenhausers had attempted to consolidate 
the two cases and also noted that "damages were not available in 
[the first action] and the fact that the remedies available in 
each case were separate and distinct precludes the application 
of claim preclusion."  The jury found damages resulting from the 
fraud in the amount of $274,184 and punitive damages in the 
amount of $500,000.  Judgment was entered accordingly.  
¶12 Lehtinen 
appealed 
the 
circuit 
court's 
decision, 
arguing, among other theories, that since the Wickenhausers 
obtained rescission in the first action, they are barred by the 
election of remedies doctrine from obtaining damages in this 
action.  The court of appeals agreed.  It concluded that the 
election of remedies doctrine bars a plaintiff from maintaining 
inconsistent legal theories and defrauded parties have to elect 
either to rescind or to affirm a contract.  Wickenhauser, No. 
2004AP2681, unpublished slip op., ¶13 (citations omitted).  The 
court of appeals concluded that rescission is inconsistent with 
a claim for damages; and therefore, it reversed the circuit 
court.  Id., ¶18.   
¶13 Since the court of appeals concluded that rescission 
in the first action barred recovery of damages in this action, 
it did not address a number of Lehtinen's alternative arguments 
that were made to the court of appeals but not to us, including 
whether:  (1) applying issue preclusion to the questions of 
liability and fraud in the first action is fundamentally unfair 
in this action for damages; (2) the actual damages found by the 
No. 
2004AP2681   
 
7 
 
jury were not supported by the evidence; (3) punitive damages 
should have been denied as a matter of law; and (4) Lehtinen was 
denied due process when the jury did not hear all the facts and 
circumstances surrounding the alleged fraud.  Id., ¶1 n.1.  
¶14 We granted the Wickenhausers' petition to review the 
decision of the court of appeals. 
II.  DISCUSSION 
A. 
Standard of Review 
¶15 The circuit court resolved this case by denying 
Lehtinen's motion for summary judgment that was based on claim 
preclusion and by confirming the jury's award of damages.  The 
court of appeals applied the election of remedies doctrine to 
overturn the circuit court's decision.  We review a denial of 
summary judgment independently, applying the same methodology as 
the circuit court.  AKG Real Estate, LLC v. Kosterman, 2006 WI 
106, ¶14, 296 Wis. 2d 1, 717 N.W.2d 835 (citing O'Neill v. 
Reemer, 2003 WI 13, ¶8, 259 Wis. 2d 544, 657 N.W.2d 403).  The 
applications of the election of remedies doctrine, the doctrine 
of claim preclusion and the common-law compulsory counterclaim 
rule to a particular set of facts present us with questions of 
law that we review independently.  See Menard, Inc. v. Liteway 
Lighting Prods., 2005 WI 98, ¶23, 282 Wis. 2d 582, 698 N.W.2d 
738.  
B. 
Election of Remedies  
¶16 The election of remedies doctrine is "an equitable 
principle barring one from maintaining inconsistent theories or 
forms of relief."  Head & Seemann, Inc. v. Gregg, 104 Wis. 2d 
No. 
2004AP2681   
 
8 
 
156, 159, 311 N.W.2d 667 (Ct. App. 1981), aff'd and adopted, 107 
Wis. 2d 126, 127, 318 N.W.2d 381 (1982).  The election of 
remedies doctrine requires a litigant to choose a remedy, where 
the remedies sought are inconsistent with one another.2  28A 
C.J.S. Election of Remedies § 16.  The election of remedies 
doctrine has been described as applying where "a certain state 
of facts relied on as the basis of a certain remedy is 
inconsistent with, and repugnant to, another certain state of 
facts relied on as the basis of another remedy."  Roberts v. 
Sears, Roebuck & Co., 573 F.2d 976, 985 (7th Cir. 1978), cert. 
denied, 439 U.S. 860 (1978) (citations omitted).   
¶17 The court of appeals in Head & Seemann explained that 
the traditional election of remedies doctrine in a contract 
action provides that a defrauded party may elect either to 
rescind3 the contract and seek rescissory damages4 or to affirm 
                                                 
2 A claim for relief in tort and a claim for relief in 
contract are not "remedies" to which the election of remedies 
doctrine applies.  Goetz v. State Farm Mut. Auto. Ins. Co., 31 
Wis. 2d 267, 273, 142 N.W.2d 804 (1966).  A remedy is the relief 
that is applied to a successful claim.  Id.   
3 One "rescinds" a contract by cancelling it unilaterally or 
by agreement.  Black's Law Dictionary 1332 (8th ed. 2004). 
4 "Rescissory damages" are awarded to return a party to the 
position that party occupied before the wrongful act.  Id. at 
419.  These damages are sometimes called "restorative damages."  
Head & Seemann, Inc. v. Gregg, 104 Wis. 2d 156, 165-67, 311 
N.W.2d 667 (Ct. App. 1981), aff'd and adopted, 107 Wis. 2d 126, 
127, 318 N.W.2d 381 (1982).  Restorative damages do not arise 
from a contract, but from a wrongful act such as fraud in the 
inducement.  Id. at 166.  Rescission of a contract has been held 
to protect future rights, while money damages compensate for 
past injuries due to fraud.  Roberts v. Sears, Roebuck & Co., 
573 F.2d 976, 985 (7th Cir. 1978), cert. denied, 439 U.S. 860 
No. 
2004AP2681   
 
9 
 
it and seek damages arising from the breach of contract.5  Head & 
Seemann, 104 Wis. 2d at 159; see also Harley-Davidson Motor Co. 
v. PowerSports, Inc., 319 F.3d 973, 988 (7th Cir. 2003).  This 
choice is forced by the inconsistency in the factual predicate 
necessary for rescission of a contract and that necessary when 
affirming a contract.  Head & Seemann, 104 Wis. 2d at 159 
(citing Seidling v. Unichem, Inc., 52 Wis. 2d 552, 557, 191 
N.W.2d 205 (1971)).  The underlying purpose of the doctrine of 
election of remedies "is to prevent double recovery for the same 
wrong."  Id.  Therefore, it "appears that if a claimant chooses 
to seek rescission [of a contract], he may not sue for damages 
[based on enforcement of the contract]."  Id.  Stated otherwise, 
one may not cancel a contract and also sue to enforce compliance 
with the contract's provisions.  
¶18 In Head & Seemann, the court of appeals explained that 
rescission and restorative damages are entirely consistent when 
fraud or misrepresentation is the cause of the claim.  Id. at 
                                                                                                                                                             
(1978).  
5 A party who breaches a contract is obligated to the 
aggrieved party for "benefit–of-the-bargain" damages "equal to 
the amounts that the aggrieved party would have received, 
including profits, if the contract had been fully performed."  
Black's Law Dictionary 416 (8th ed. 2004).  
No. 
2004AP2681   
 
10 
 
168.6  The court concluded that a defrauded vendor of real estate 
who obtains rescission of a land contract and restitution of the 
land in specie may also recover damages for the loss of rents 
from the land for the period of the purchaser's possession and 
for the vendor's out-of-pocket expenses.  Id.  The court stated, 
"restitutionary damages conform with the purpose of rescission, 
which is to put the defrauded party back in as good a position 
as he occupied before entering the contract."  Id. at 166.  The 
court noted that rescission rules out only "expectation" or 
benefit-of-the-bargain damages.  Id.    
¶19 Prior to our adoption of the court of appeals opinion 
in Head & Seemann, we examined the election of remedies doctrine 
in Schwabe v. Chantilly, Inc., 67 Wis. 2d 267, 269, 226 N.W.2d 
452 (1975).  In Schwabe, a landlord sued the tenants for 
                                                 
6 See also 2 Dan B. Dobbs, Dobbs Law of Remedies § 9.4, at 
612 n.38 (2d ed. 1993) (stating that Head & Seemann, Inc. v. 
Gregg, 107 Wis. 2d 126, 318 N.W.2d 381 (1982), confronts the 
traditional election of remedies doctrine and modifies the rule 
to "permit the plaintiff to recover all consistent 'restorative' 
costs or damages").  A number of cases in various jurisdictions 
have allowed recovery of both rescission and some types of 
damages.  Id. at 611-12 n.35 (citing Seekings v. Jimmy GMC of 
Tucson, Inc., 638 P.2d 210 (Ariz. 1981) ("[C]onsequential 
damages may be awarded in a case where revocation of acceptance 
is granted."); Landin v. Ford, 727 P.2d 331, 332 (Ariz. 1986) 
("A plaintiff electing rescission is entitled to those damages 
that are necessary to make him whole."); Robison v. Katz, 610 
P.2d 201 (N.M. Ct. App. 1980); Head & Seemann, 107 Wis. 2d at 
127; First Equity Inv. Corp. v. United Serv. Corp. of Anderson, 
386 S.E.2d 245 (S.C. 1989).  In addition, "the Uniform 
Commercial Code expressly permits both kinds of recovery."  
Dobbs, supra, at 611-12 & n.36 (citing U.C.C. § 2-711 as 
providing that "buyer's revocation of acceptance, analogous to 
rescission, permits recovery of any price paid and damages for 
non-delivery"). 
No. 
2004AP2681   
 
11 
 
nonpayment of rent.  Id. at 268-69.  The tenants raised fraud in 
the inducement as an affirmative defense, but they did not 
counterclaim.  Id. at 269.  Judgment was awarded to the tenants 
based on that defense.  Id.  The tenants subsequently brought an 
action against the landlord and the landlord's managing officer, 
based on the same fraud.  Id.  We concluded that the election of 
remedies doctrine did not bar the action because the tenants' 
"assertion of the affirmative defense in the first action was 
not 
an 
election 
in 
the 
sense 
of 
commencing 
an 
action 
affirmatively seeking rescission of the lease."  Id. at 278.  We 
also concluded that where a subsequent action brought by a 
defendant in the first action did not "upset the determination 
reached in the first [action]", but rather, affirmed the first 
action, the doctrine of election of remedies did not bar a 
subsequent action brought by a party who was a defendant, and 
prevailed, in the first action.  Id. at 274.   
¶20 Like Schwabe, the Wickenhausers' present action does 
not "upset the determination" reached in the first action; 
rather, it affirms the first action.  In the first action, the 
Wickenhausers asserted an affirmative defense based on fraud in 
the inducement of the option, and the court, finding in favor of 
the Wickenhausers, rescinded the option.  In this second action, 
the Wickenhausers are not seeking to enforce a contract 
provision against Lehtinen.  Rather, this second action is based 
on fraud and the damages to them that resulted from Lehtinen's 
fraud.  Therefore, it is consistent with the circuit court's 
factual findings and legal conclusions in the first action, 
No. 
2004AP2681   
 
12 
 
i.e., that Lehtinen obtained the Wickenhausers' signature on the 
option by fraudulent misrepresentations.  Since this second 
action was brought by a party who was a defendant in the first 
action and is consistent with the factual findings and legal 
conclusions of the first action, the doctrine of election of 
remedies does not bar it.  We note that by permitting both 
rescission and restorative damages, the Wickenhausers will not 
receive a double recovery for the same injury.  This is so 
because 
rescission 
of 
the 
option 
contract 
protects 
the 
Wickenhausers' future interest in their land and money damages 
compensates 
them 
for 
past 
injuries 
that 
were 
caused 
by 
Lehtinen's fraud.   
C. 
Claim Preclusion and Common-law Compulsory Counterclaims  
¶21 Lehtinen contends that all the elements of claim 
preclusion are met, and therefore, this action is barred.  He 
seeks to preclude the Wickenhausers from asserting claims that 
they did not counterclaim for in the first action.   
¶22 The elements of claim preclusion are:  "(1) an 
identity between the parties or their privies in the prior and 
present suits; (2) an identity between the causes of action in 
the two suits; and, (3) a final judgment on the merits in a 
court of competent jurisdiction."  N. States Power Co. v. 
Bugher, 189 Wis. 2d 541, 551, 525 N.W.2d 723 (1995) (citing 
DePratt v. W. Bend Mut. Ins. Co., 113 Wis. 2d 306, 311, 334 
N.W.2d 883 (1983)).  In describing claim preclusion in general 
terms, we have said, "'a final judgment is conclusive in all 
subsequent actions between the same parties [or their privies] 
No. 
2004AP2681   
 
13 
 
as to all matters which were litigated or which might have been 
litigated in the former proceedings.'"  Id. at 550 (alteration 
in original) (quoting Lindas v. Cady, 183 Wis. 2d 547, 558, 515 
N.W.2d 458 (1994)).   
¶23 However, our general statements of claim preclusion 
involve the application of claim preclusion to a plaintiff in a 
second action who was also a plaintiff in the first action,7 to a 
plaintiff in privity with the plaintiff in the first action,8 or 
to a counterclaiming defendant who did not prevail in the first 
action.9  Claim preclusion, standing alone, is not a bar to a 
subsequent suit by a defendant who chooses not to counterclaim 
                                                 
7 See, e.g., DePratt v. W. Bend Mut. Ins. Co., 113 Wis. 2d 
306, 334 N.W.2d 883 (1983) (precluding a second action by 
DePratt against the same defendants); Manu-Tronics, Inc. v. 
Effective Mgmt. Sys., Inc., 163 Wis. 2d 304, 471 N.W.2d 263 (Ct. 
App. 1991) (precluding Manu-Tronics' second suit where the first 
action was concluded by binding arbitration); Jantzen v. Baker, 
131 Wis. 2d 507, 388 N.W.2d 660 (Ct. App. 1986) (precluding the 
plaintiff's re-litigation of liability that was decided in prior 
action).   
8 Landess v. Schmidt, 115 Wis. 2d 186, 340 N.W.2d 213 (Ct. 
App. 1983) (precluding a subsequent action against employees 
acting in their official capacities when the employer had been 
sued previously). 
9 See, e.g., Vukelic v. Upper Third St. Sav. & Loan Ass'n, 
222 Wis. 568, 269 N.W. 273 (1936) (concluding that the first 
action determined that Vukelic had no claim to the money he 
asserted a right to in the second action); Murphey v. Weil, 92 
Wis. 467, 66 N.W. 532 (1896) (concluding that because the jury 
found against Murphey in the first action, where he was a 
counterclaiming defendant for money sought again in this action, 
his claim was barred by claim preclusion); Great Lakes Trucking 
Co. v. Black, 165 Wis. 2d 162, 477 N.W.2d 65 (Ct. App. 1991) 
(concluding that the stipulation in the first action prevented 
Great Lakes from maintaining a subsequent action). 
No. 
2004AP2681   
 
14 
 
in the first action.  Were this not so, claim preclusion would 
improperly operate as a compulsory counterclaim rule.   
¶24 In Wisconsin, generally, counterclaims are permissive.  
Wis. Stat. § 802.07(1) (2005-06);10 Menard, 282 Wis. 2d 582, ¶27.  
This general rule is grounded in "the belief that notions of 
fairness require that a defendant be given his day in court when 
and where he sees fit."  A.B.C.G. Enters., Inc. v. First Bank 
Se., N.A., 184 Wis. 2d 465, 476, 515 N.W.2d 904 (1994) (citing 
Restatement (Second) of Judgments § 22 cmt. a (1982)).   
¶25 However, that is not to say that a defendant who has a 
claim against a plaintiff in the first action is always free to 
sit on his claim until some later lawsuit without danger of 
losing the right to bring it.  Wisconsin also has adopted the 
common-law compulsory counterclaim rule that is set out in 
Restatement (Second) of Judgments § 22(2)(b) (1982).  Menard, 
282 Wis. 2d 582, ¶28; A.B.C.G., 184 Wis. 2d at 476-77.   
The 
common-law 
compulsory 
counterclaim 
rule 
creates an exception to the permissive counterclaim 
statute and bars a subsequent action by a party who 
was a defendant in a previous suit if "a favorable 
judgment in the second action would nullify the 
judgment in the original action or impair rights 
established in the initial action."  The common-law 
compulsory counterclaim rule operates to "preserve[] 
the integrity and finality of judgments and the 
                                                 
10 Wisconsin Stat. § 802.07(1) provides, in pertinent part:  
"A defendant may counterclaim any claim which the defendant has 
against a plaintiff, upon which a judgment may be had in the 
action."  (Emphasis added.) 
All subsequent references to the Wisconsin Statutes are to 
the 2005-06 version unless otherwise indicated. 
No. 
2004AP2681   
 
15 
 
litigant's 
reliance 
on 
them, 
by 
precluding 
a 
collateral attack upon a judgment in a subsequent 
proceeding." 
Menard, 282 Wis. 2d 582, ¶28 (quoting A.B.C.G., 184 Wis. 2d at 
476-77).11   
¶26 The common-law compulsory counterclaim rule is a 
narrow 
exception 
to 
the 
general 
rule 
of 
permissive 
counterclaims.  It operates to protect the integrity of 
judgments from collateral attack by precluding a defendant in 
the first action from commencing a second action that will 
nullify the first judgment or impair rights established in the 
first action.  See Kevin M. Clermont, Common-Law Compulsory 
Counterclaim Rule:  Creating Effective and Elegant Res Judicata 
Doctrine, 79 Notre Dame L. Rev. 1745 (2004).   
¶27 To 
determine 
whether 
the 
common-law 
compulsory 
counterclaim rule applies to this action, we begin by analyzing 
whether all the elements of claim preclusion are present.  
                                                 
11 In A.B.C.G. Enterprises, Inc. v. First Bank Southeast, 
N.A., 184 Wis. 2d 465, 477, 515 N.W.2d 904 (1994), we quoted 
from the Restatement (Second) of Judgments § 22(2)(b) (1982) to 
explain the common-law compulsory counterclaim rule as follows: 
(2) A defendant who may interpose a claim as a 
counterclaim in an action but fails to do so is 
precluded, after the rendition of judgment in that 
action, from maintaining an action on the claim if:  
. . . 
(b) The relationship between the counterclaim and 
the 
plaintiff's 
claim 
is 
such 
that 
successful 
prosecution of the second action would nullify the 
initial judgment or would impair rights established in 
the initial action. 
No. 
2004AP2681   
 
16 
 
Menard, 282 Wis. 2d 582, ¶28.  In addition, the claim in the 
second suit, if successful, must nullify the first judgment or 
impair rights established in the first action.  Id.   
¶28 In this case, there is no dispute that the first 
action resulted in a final judgment on the merits in a court of 
competent jurisdiction.  However, in regard to whether there is 
an identity of parties, we note that the parties in the two 
actions are not exactly the same.  Wickenhauser Farms, Inc., was 
named as a defendant in the first action and is not named as a 
plaintiff in this action.  Also, the Nielsens were not parties 
in the first action, but are named as defendants in this action.  
However, we have stated that there is an identity of parties 
when the parties are, "for the most part, identical."  Sopha v. 
Owens-Corning Fiberglas Corp., 230 Wis. 2d 212, 233 n.28, 601 
N.W.2d 627 (1999) (emphasis added).   
¶29 Similar to the parties in Sopha, the parties in this 
second action and the parties in the first action are, for the 
most 
part, 
identical. 
 
While 
the 
Wickenhausers' 
exact 
relationship to Wickenhauser Farms, Inc. is not clear, the 
Wickenhausers' answer to Lehtinen's complaint in the first 
action establishes that they are officers of Wickenhauser Farms, 
Inc.12  The Nielsens were named as defendants in this action 
because of their possible mortgage interest in the property and 
                                                 
12 We note that Wisconsin case law provides that the 
requirement of identity of parties is met when "'the two actions 
involve a closely-held corporation in one case . . . and its 
principal shareholder in the other.'"  Manu-Tronics, 163 Wis. 2d 
at 315 (citation omitted).   
No. 
2004AP2681   
 
17 
 
their 
possible 
contractual 
relationship 
with 
Lehtinen.13  
Regardless of the exact relationships of these parties, we agree 
with Lehtinen that Wickenhauser Farms, Inc. and the Nielsons are 
unrelated to the fraud allegations, and therefore, for purposes 
of the Wickenhausers' fraud claim, the parties are the same in 
both lawsuits. 
¶30 Next, we turn to whether there is an identity of 
claims.  This determination requires us to examine both lawsuits 
within the framework of the transactional analysis adopted from 
the Restatement (Second) of Judgments § 24 (1982).  Menard, 282 
Wis. 2d 582, ¶30 (citing DePratt, 113 Wis. 2d at 311).  "'Under 
this analysis, all claims arising out of one transaction or 
factual situation are treated as being part of a single cause of 
action.'"  Id. (quoting Parks v. City of Madison, 171 Wis. 2d 
730, 735, 492 N.W.2d 365 (Ct. App. 1992)).  A transaction 
"'connotes a natural grouping or common nucleus of operative 
facts.'"  Id. (quoting Restatement (Second) of Judgments § 24 
cmt. b (1982)).  To determine whether claims arise from one 
transaction, "we may consider whether the facts are related in 
time, space, origin, or motivation."  Id. (citing Restatement 
(Second) of Judgments § 24 cmt. b (1982)).  We have noted that 
                                                 
13 No argument was presented to us contending that the 
relationship between the Nielsens and Lehtinen rises to the 
level of privities, and therefore, we do not address this issue.  
However, we note that "[p]rivity exists when a person is so 
identified in interest with a party to former litigation that he 
or she represents precisely the same legal right in respect to 
the subject matter involved."  Pasko v. City of Milwaukee, 2002 
WI 33, ¶16, 252 Wis. 2d 1, 643 N.W.2d 72. 
No. 
2004AP2681   
 
18 
 
under the transactional analysis, "it is irrelevant that 'the 
legal theories, remedies sought, and evidence used may be 
different between the first and second actions.'"  Id., ¶32 
(quoting Kruckenberg v. Harvey, 2005 WI 43, ¶26, 279 Wis. 2d 
520, 694 N.W.2d 879); see also N. States Power, 189 Wis. 2d at 
555 ("[T]he number of substantive theories that may be available 
to the plaintiff is immaterial——if they all arise from the same 
factual 
underpinnings.") 
(citing 
Restatement 
(Second) 
of 
Judgments § 24 cmt. a (1982)).   
¶31 We conclude that there is an identity of claims 
between this second action and the first action because the 
fraud allegations arise out of the same operative facts, i.e., 
Lehtinen's 
fraudulent 
representations 
that 
caused 
the 
Wickenhausers to sign the option and his subsequent recording of 
it.  The option was rescinded in the first action, and the court 
concluded that Lehtinen fraudulently induced the Wickenhausers 
to sign it.  These are the same fraudulent representations that 
are the foundation for this action.  That the legal theories 
employed or remedies sought may differ in each of the actions is 
not relevant to a transactional analysis of the claims.  Menard, 
282 Wis. 2d 582, ¶32.  Accordingly, all three elements of claim 
preclusion are present here. 
¶32 However, although we have concluded that all the 
elements of claim preclusion are met, this action will not be 
barred 
unless 
the 
Wickenhausers' 
claim 
was 
a 
common-law 
compulsory counterclaim because in Wisconsin, with this one 
narrow exception, counterclaims are permissive.  Wis. Stat. 
No. 
2004AP2681   
 
19 
 
§ 802.07(1); Menard, 282 Wis. 2d 582, ¶27.  In order to 
constitute 
a 
common-law 
compulsory 
counterclaim, 
the 
Wickenhausers' successful claim in this second action must 
nullify the judgment in the first action or impair rights 
established in the first action.  Menard, 282 Wis. 2d 582, ¶28; 
A.B.C.G., 184 Wis. 2d at 476-77.   
¶33 In A.B.C.G., First Bank Southeast, N.A. (First Bank) 
sued A.B.C.G. Enterprises, Inc. (ABCG) "in six separate actions 
seeking foreclosure of ABCG's interests in various properties 
pursuant to certain mortgage assumption agreements."  A.B.C.G., 
184 Wis. 2d at 471.  "[T]he circuit court entered default 
judgments of foreclosure in favor of First Bank" because ABCG 
did not respond to the service of First Bank's complaint.  Id.   
¶34 Subsequently, ABCG brought an action against First 
Bank, alleging misrepresentations as to the investment quality, 
breach 
of 
contract 
regarding 
schedules 
for 
payments 
and 
extension of additional credit, and failure to properly manage 
the properties.  Id. at 471-72.  Under those circumstances, we 
determined that a judgment in favor of ABCG would "directly 
undermine" the original default judgments in which the court 
foreclosed ABCG's interest in the properties.  Id. at 483.  
Accordingly, 
the 
common-law 
compulsory 
counterclaim 
rule 
precluded ABCG's action.  Id.   
¶35 Similarly, in Menard, we concluded that Menard's 
action was barred by the common-law compulsory counterclaim rule 
because allowing Menard to recover would "undermine" Liteway 
Lighting Product's (Liteway) original judgment.  Menard, 282 
No. 
2004AP2681   
 
20 
 
Wis. 2d 582, ¶2.  Menard had purchased lighting products from 
Liteway and during the business relationship, Menard held back 
"money due to Liteway as 'credit' for products Menard claimed 
were defective."  Id., ¶3.  After the business relationship 
ceased, "the parties began disputing the amount of money Menard 
owed Liteway."  Id.  Menard sued Liteway alleging it had not 
been reimbursed for some returned defective products and, as a 
result, Liteway had been unjustly enriched.  Id., ¶4.  Liteway 
answered, asserting claim preclusion as an affirmative defense 
because Menard's claims could have been brought in the prior 
action Liteway had maintained against Menard.  Id., ¶5.  
Liteway's prior action was for breach of contract due to unpaid 
invoices.  Id., ¶6.  Liteway had obtained a default judgment in 
that first action due to Menard's failure to file a timely 
answer.  Id., ¶7.   
¶36 Because of the collateral consequences that Menard's 
claims could have had on the judgment in the first action, we 
held that the common-law compulsory counterclaim rule barred 
Menard's subsequent suit for credit for the returned goods.  
Id., ¶20.  We stated, "Menard's claims fall under the common-law 
compulsory counterclaim rule because allowing Menard to proceed 
with 
its 
present 
suit 
would 
impair 
Liteway's 
rights 
as 
determined in the original action and would undermine the 
validity of the judgment Liteway obtained."  Id., ¶22.   
¶37 In contrast to A.B.C.G. and Menard, in Schwabe, we 
concluded that because judgment was rendered in favor of the 
Schwabes as defendants in the first action based on the 
No. 
2004AP2681   
 
21 
 
affirmative defense of fraud, the Schwabes were not required to 
have counterclaimed in the first action.  Schwabe, 67 Wis. 2d at 
273.  Accordingly, we concluded that the Schwabes could bring a 
second action for damages caused by the fraud because the second 
action would not impair the rights established in the prior 
judgment.  Id. at 274.  In Schwabe, we explained that it was 
permissible for Schwabe to start a new action because Schwabe 
was 
"not 
in 
the 
position 
of 
attacking 
facts 
previously 
established."  Id. at 273.  As the Restatement of Judgments § 58 
cmt. d (1982) states: 
Where the same facts constitute a defense to the 
plaintiff's claim and also a ground for counterclaim, 
and the defendant sets up these facts as a defense but 
not as a counterclaim, and after litigation of the 
defense judgment is given for the defendant, the 
defendant 
is 
not 
precluded 
from 
maintaining 
a 
subsequent action against the plaintiff based upon 
these facts.  In such a case he is not improperly 
splitting his cause of action . . ., although he uses 
the same facts first as a defense to the plaintiff's 
claim and later as the basis of an action against the 
plaintiff.  In the subsequent action, the judgment in 
the prior action is conclusive as to the facts 
actually litigated and determined in the first action. 
However, we also explained in Schwabe that where the plaintiff 
in the second action lost in the first action, he or she is 
barred from commencing a new action.  Schwabe, 67 Wis. 2d at 
272-73. 
¶38 The Wickenhausers' action is not barred by the common-
law compulsory counterclaim rule because, as with Schwabe, this 
second action does not nullify the first judgment or impair any 
rights established in that action.  In the first action, the 
No. 
2004AP2681   
 
22 
 
Wickenhausers were successful in their affirmative defense based 
on fraud.  This action for damages is based on the same fraud 
that was proven in the first action.  The Wickenhausers are not 
attacking factual findings or legal conclusions previously 
determined.  Accordingly, the Wickenhausers were not required to 
have counterclaimed in the first action under the common-law 
compulsory counterclaim rule; and therefore, they are not 
precluded from seeking damages in this second action.   
D. 
Economic Loss Doctrine  
¶39 The Wickenhausers contend that because a contract to 
lend money was the basis for their relationship with Lehtinen, 
we should explain that the fraud in the inducement exception to 
the economic loss doctrine is consistent with their claim.  The 
economic loss doctrine is a judicially created rule that 
"'preclud[es] contracting parties from pursuing tort recovery 
for purely economic or commercial losses associated with the 
contract relationship.'"  Kaloti Enters., Inc. v. Kellogg Sales 
Co., 2005 WI 111, ¶27, 283 Wis. 2d 555, 699 N.W.2d 205 
(citations omitted).  The doctrine is based on the premise 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.'"  Id., ¶28 (citations omitted).  As a 
general rule, "the economic loss doctrine requires transacting 
parties in Wisconsin to pursue only their contractual remedies 
when asserting an economic loss claim, in order to preserve the 
distinction between contract and tort law."  Digicorp, Inc. v. 
No. 
2004AP2681   
 
23 
 
Ameritech Corp., 2003 WI 54, ¶34, 262 Wis. 2d 32, 662 N.W.2d 
652. 
¶40 In Kaloti, we adopted a narrow fraud in the inducement 
exception to the economic loss doctrine.  Kaloti, 283 Wis. 2d 
555, ¶42.  We held 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.'"  Id. 
(quoting Digicorp, 262 Wis. 2d 32, ¶47, and citing Huron Tool & 
Eng'g Co. v. Precision Consulting Servs., Inc., 532 N.W.2d 541, 
545 (Mich. Ct. App. 1995)).  We explained that to invoke this 
narrow fraud in the inducement exception, a plaintiff must 
demonstrate:  "(1) there was an intentional misrepresentation 
. . .; (2) the misrepresentation occurred before the contract 
was formed . . .; and (3) the fraud [was] extraneous to, rather 
than interwoven with, the contract."  Id., ¶42 (internal 
quotation and citation omitted).  Stated another way, the third 
requirement means "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."  Id.  We noted 
"'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.'"  Id., ¶43 (quoting Huron Tool, 532 N.W.2d at 545) 
(alteration in original). 
¶41 In the case before us, the Wickenhausers have stated a 
claim 
for 
intentional 
misrepresentation. 
 
Second, 
the 
No. 
2004AP2681   
 
24 
 
misrepresentation occurred before the option was executed 
because the circuit court in the first action concluded 
Lehtinen's fraudulent misrepresentations, including the reasons 
Lehtinen wanted the option and his assurances that he would not 
record the option, misled the Wickenhausers into signing it.14  
Finally, we conclude that "the fraud [was] extraneous to, rather 
than interwoven with, the contract."  As the circuit court in 
the first action concluded, Lehtinen's misrepresentations were 
made to induce the Wickenhausers to sign the option.  The 
misrepresentations did not relate to Lehtinen's performance of 
the contract, which was to obtain a $200,000 loan.  Therefore, 
this fraud gives rise to an independent cause of action in tort.   
¶42 Furthermore, we recognize that certain policy concerns 
articulated in Kaloti are pertinent to this case.  In Kaloti, we 
explained that "'Wisconsin has a long-standing principle that 
parties need a background of truth and fair dealing in 
commercial relationships.'  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 
                                                 
14 Even though Lehtinen acknowledges the findings in the 
first action, he argues in his brief that the fraud did not 
precede the contract in this case because the option was signed 
on January 14, 1998 and the Wickenhausers testified they did not 
discuss the option, nor had they seen it, prior to that date.  
However, we do not believe the fact that the Wickenhausers did 
not discuss the option prior to that date means Lehtinen's 
misrepresentations were not made prior to when the Wickenhausers 
signed the contract.  Common sense dictates that since the 
misrepresentations fraudulently induced the Wickenhausers to 
sign the option, those misrepresentations necessarily occurred 
prior to when the option was formed.   
No. 
2004AP2681   
 
25 
 
engaging in a commercial transaction."  Id., ¶47 (quoting Van 
Lare v. Vogt, Inc., 2004 WI 110, ¶30, 274 Wis. 2d 631, 683 
N.W.2d 46, and citing Digicorp, 262 Wis. 2d 32, ¶36).  In 
addition, "the limited fraud in the inducement exception . . . 
promotes the economic loss doctrine's goal of protecting 
parties' freedom to contract.  . . .  Tort law will apply only 
under circumstances . . . where one party induces another 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."  Id., ¶¶48-49.  We conclude that to promote 
truth and fair dealing, Lehtinen's misrepresentations to the 
Wickenhausers may be addressed by tort law because the fraud is 
extraneous 
to 
and 
not 
interwoven 
with 
the 
contract.  
Accordingly, this action is not precluded by the economic loss 
doctrine.15 
                                                 
15 The 
concurrence inaccurately asserts, "the majority 
opinion extends the economic loss doctrine to the present case 
beyond any case this court has decided."  Concurrence, ¶51.  The 
concurrence then spends ¶¶51-63 explaining why we should not 
"extend" the economic loss doctrine to "non-commercial" real 
estate transactions.  The concurrence is simply wrong on the 
state of the law in Wisconsin.  The majority opinion does not 
extend the economic loss doctrine into new contexts.  For 
example, in a recent case, Linden v. Cascade Stone Co., 2005 WI 
113, 283 Wis. 2d 606, 699 N.W.2d 189, we concluded that a 
contract to construct residential real estate was subject to the 
economic loss doctrine; and therefore, the Lindens were required 
to proceed on contract claims rather than tort claims.  Id. at 
¶¶17, 25.   
No. 
2004AP2681   
 
26 
 
¶43 Although we conclude that the Wickenhausers' claims 
for compensatory and punitive damages based on fraud are not 
barred by any of the doctrines discussed herein, we did not 
address several alternative arguments that were raised by 
Lehtinen to the court of appeals.  These arguments include 
whether:  (1) applying issue preclusion to the questions of 
liability and fraud in the first action is fundamentally unfair 
in this action for damages; (2) the actual damages found by the 
jury were not supported by the evidence; (3) punitive damages 
should have been denied as a matter of law; and (4) Lehtinen was 
denied due process when the jury did not hear all the facts and 
circumstances surrounding the alleged fraud.  Because these 
issues were not briefed for us to consider, but were briefed to 
the court of appeals, we remand these issues to the court of 
appeals for further consideration consistent with this opinion. 
III.  CONCLUSION 
¶44 We conclude that the election of remedies doctrine 
does not bar the Wickenhausers from obtaining damages in this 
action because rescission of the option in the prior action is 
consistent with the subsequent award of damages.  Furthermore, 
their claim in this action is not barred by claim preclusion, 
nor did the common-law compulsory counterclaim rule require the 
Wickenhausers to bring their claim for damages as a counterclaim 
in the first action.  Furthermore, the fraud in the inducement 
exception to the economic loss doctrine is consistent with our 
holding.  However, we do not address several alternative 
arguments raised by Lehtinen to the court of appeals because 
No. 
2004AP2681   
 
27 
 
they were not brought before us for consideration.  Accordingly, 
we reverse the court of appeals determination and remand to the 
court of appeals for further proceedings consistent with this 
opinion. 
By the Court.—The decision of the court of appeals is 
reversed and the cause remanded to the court of appeals. 
 
 
 
 
No.  2004AP2681.ssa 
 
1 
 
¶45 SHIRLEY S. ABRAHAMSON, C.J.   (concurring).  I agree 
with the majority opinion that the Wickenhausers have a claim 
for intentional misrepresentation and are not barred by the 
election of remedies in pursuing it.  I cannot, however, join 
the majority opinion's discussion of the economic loss doctrine 
for two reasons: 
I. The majority opinion's discussion of the economic 
loss doctrine ignores the parties' arguments and decides 
the application of the economic loss doctrine to the 
present case——an issue that the parties did not raise or 
brief. 
II. Without briefs or argument by the parties and 
without analysis, the majority opinion extends the economic 
loss doctrine to the present case, beyond any case this 
court has decided.   
I 
¶46 The parties agree that the economic loss doctrine does 
not apply in the present case.     
¶47 The Lehtinens contend that "the economic loss doctrine 
is completely irrelevant to this case. . . . Lehtinens have 
never raised the economic loss doctrine as a defense. . . . The 
issue in this case is not whether Wickenhausers can bring a 
claim for fraud, or seek consequential damages, but whether they 
can choose remedies which are legally inconsistent."1 
                                                 
1 Defendant's-Appellants' (Lehtinens') Response Brief and 
Appendix at 26. 
No.  2004AP2681.ssa 
 
2 
 
¶48 The Wickenhausers argue that if this court holds that 
they have made an election of remedies and chosen contract 
remedies, then the court should adopt a fraud-in-the-inducement-
like exception to the election of remedies doctrine, like the 
Kaloti2 fraud-in-the-inducement exception to the economic loss 
doctrine.3   
¶49 Because the majority opinion holds that the election 
of remedies doctrine does not apply to the present case, no 
discussion of a fraud-in-the-inducement-like exception to the 
election of remedies is needed.  
¶50 Because the majority opinion ignores the parties' 
arguments and needlessly reaches the application of the economic 
loss doctrine to the facts of the present case, I do not join 
the majority opinion's discussion of the economic loss doctrine. 
II 
¶51 Furthermore, without briefs or argument by the parties 
and without any analysis, the majority opinion extends the 
economic loss doctrine to the present case beyond any case this 
court has decided.   
                                                 
2 Kaloti Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, 
¶29, 283 Wis. 2d 555, 699 N.W.2d 205.   
3 Reply Brief of Wickenhausers at 13-14 ("Wickenhausers 
acknowledged that cases involving the economic loss doctrine 
arise from a contract for the sale of goods.  That did not occur 
here.  However, the principle [of fraud in the inducement] is 
what is important: when deliberate misrepresentation induces 
another into a transaction with a false sense of the risks, 
duties or obligations involved, the party so induced is able to 
pursue damages."). 
No.  2004AP2681.ssa 
 
3 
 
¶52 An unstated premise underlying the majority opinion's 
discussion of the economic loss doctrine is that the economic 
loss doctrine applies to the present case, that is, it applies 
to a noncommercial real estate transaction in which a party 
claims intentional misrepresentation and in which at least one 
party was not sophisticated and was not represented by counsel 
during negotiations.  The majority opinion cites no case 
supporting its unstated premise.   
¶53 This court has not decided whether the economic loss 
doctrine covers all real estate transactions.     
¶54 A 
short 
history 
of 
the 
economic 
loss 
doctrine 
demonstrates the point.  The economic loss doctrine is a 
judicially created doctrine that, in theory, seeks to preserve 
the distinction between contract law and tort law because 
"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."4 
¶55 In prior cases, the court has broadened the economic 
loss doctrine from addressing "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" in a 
commercial transaction5 to addressing those damages in a consumer 
                                                 
4 Daanen 
& 
Janssen, 
Inc. 
v. 
Cedarapids, 
Inc., 
216 
Wis. 2d 395, 404, 573 N.W.2d 842 (1998). 
5 Id. at 400-01 (internal quotation marks omitted) (remote 
commercial purchaser); Sunnyslope Grading, Inc. v. Miller, 
Bradford & Risberg, Inc., 148 Wis. 2d 910, 437 N.W.2d 213 (1989) 
(commercial transaction). 
No.  2004AP2681.ssa 
 
4 
 
transaction as well.6  In these circumstances, claims of 
negligent and strict liability misrepresentations were barred by 
the economic loss doctrine.7 
¶56 In 
Mose 
v. 
Tedco 
Equities——Potter 
Road 
Ltd. 
Partnership, 228 Wis. 2d 848, 598 N.W.2d 594 (Ct. App. 1999), 
the court of appeals applied the economic loss doctrine to a 
commercial real estate transaction involving land that both the 
seller and buyer knew was contaminated.  The contract provided 
for clean-up of the contamination.  The court of appeals simply 
stated that it did not "discern any reason to forego application 
of the economic loss doctrine simply because the 'product' is 
real estate."  Id. at 859.   
¶57 Kailin v. Armstrong, 2002 WI App 70, ¶27, 252 
Wis. 2d 676, 643 N.W.2d 132, also involved a commercial real 
estate transaction.  The complaint alleged that the defendants 
had intentionally failed to disclose that one of the tenants had 
a history of delinquency in rent payments and was in default at 
the time of the offer and the closing.  In a single sentence 
citing only to the Mose case, the court of appeals stated that 
the economic loss doctrine "applies when real estate is the 
subject of the contract."  Id., ¶27.    
                                                 
6 State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 225 
Wis. 2d 305, 311, 324, 592 N.W.2d 201 (1999). 
7 Other cases have addressed the application of the economic 
loss doctrine in contracts for services and in mixed contracts 
for services and products.  See Ins. Co. of N. Am. v. Cease 
Elec. Inc., 2004 WI 139, 276 Wis. 2d 361, 688 N.W.2d 462 
(holding that economic loss doctrine does not apply to contracts 
for service). 
No.  2004AP2681.ssa 
 
5 
 
¶58 Although the court of appeals seemed to be on its way 
to extend the economic loss doctrine to all real estate 
contracts, this court in Van Lare v. Vogt, Inc., 2004 WI 110, 
¶21, 
274 
Wis. 2d 631, 
683 
N.W.2d 46, 
constricted 
the 
applicability of the Mose and Kailin cases.   
¶59 Referring to the Mose and Kailin cases as addressing 
whether the economic loss doctrine applies to commercial real 
estate contracts, this court in Van Lare refused to decide 
whether the economic loss doctrine applies to all real estate 
transactions.  Specifically, the Van Lare court announced that 
"we do not decide today whether the broader conceptualization of 
the economic loss doctrine in Tietsworth covers all real estate 
transactions . . . ."  Van Lare, 274 Wis. 2d 631, ¶21.   
¶60 The Van Lare court applied the economic loss doctrine 
only to commercial real estate transactions negotiated at arms' 
length between two sophisticated parties represented by counsel 
during a negotiation process that resulted in a written 
bargained-for contract, when the complainant alleged strict 
liability misrepresentation.  The Van Lare court concluded that 
applying the economic loss doctrine in such a case furthers the 
policies that justify the doctrine's existence.  Van Lare, 274 
Wis. 2d 631, ¶24.    
¶61 Thus, the Van Lare court left open the question of the 
extension 
of 
the 
economic 
loss 
doctrine 
in 
real 
estate 
transactions 
to 
noncommercial 
transactions, 
to 
claims 
of 
intentional 
misrepresentation, 
to 
transactions 
between 
unsophisticated parties negotiating without counsel, and to 
No.  2004AP2681.ssa 
 
6 
 
transactions with an oral agreement or with a not-fully-
bargained-for agreement.8       
¶62 After Van Lare, this court adopted, in a product case, 
a 
fraud-in-the-inducement 
exception 
to 
the 
economic 
loss 
doctrine when intentional misrepresentation is alleged.9  The 
applicability of the fraud-in-inducement exception in a real 
estate case was not decided. 
¶63 The next case of interest is Linden v. Cascade Stone 
Co., Inc., 2005 WI 113, 283 Wis. 2d 606, 699 N.W.2d 189, cited 
by the majority opinion at ¶42 n.15.  At issue in Linden was the 
applicability of the economic loss doctrine to a contract to 
construct a residence.10  A contract for the construction of a 
                                                 
8 The Van Lare court cited, but without comment, the court 
of appeals certification memorandum suggesting 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."  Van Lare, 274 Wis. 2d 631, ¶32. 
9 Kaloti, 283 Wis. 2d 555, ¶29.  The adoption of this rule 
followed discussion and disagreement by the court in whether 
such an exception should be recognized in Digicorp, Inc. v. 
Ameritech Corp., 2003 WI 54, 262 Wis. 2d 32, 662 N.W.2d 652, and 
Tietsworth 
v. 
Harley-Davidson, 
Inc., 
2004 
WI 
32, 
270 
Wis. 2d 146, 677 N.W.2d 233.  
10 Specifically, the three questions before the Linden court 
were: 
(1) whether a general contract to complete a described 
project, 
whereunder 
the 
general 
contractor 
subcontracts with others to assist in completing the 
project and a claim is made for negligent services 
provided by the subcontractors, controls the analysis 
of whether the contract is primarily for goods or 
primarily for services; (2) whether an objective test 
should be used by Wisconsin courts to determine if the 
predominant purpose of a mixed contract was for the 
No.  2004AP2681.ssa 
 
7 
 
house, a dwelling, or any other architectural structure is 
significantly——and 
legally——different 
from 
a 
contract 
to 
purchase real estate (whether it be land or land with existing 
structures).  Recognizing this distinction, the Linden court 
examined the applicability of the economic loss doctrine to a 
contract for the construction of a house as a contract for goods 
(or products) and services, and not as a contract for a real 
estate transaction.   
¶64 In deciding whether the economic loss doctrine applied 
to the contract for construction of a house, the Linden court 
described how "[s]ome contracts encompass both products and 
services.  We use the predominant purpose test to determine 
whether 
a 
mixed 
contract 
for 
products 
and 
services 
is 
predominantly a sale of a product and therefore subject to the 
economic loss doctrine, or predominantly a contract for services 
and therefore not subject to the economic loss doctrine . . . ."  
Linden, 283 Wis. 2d 606, ¶8 (citations omitted). 
¶65 The Linden court concluded "that under the totality of 
circumstances, the predominant purpose of the contract was for a 
                                                                                                                                                             
sale of a product or to provide services; and (3) 
whether the "integrated system limitation" of the 
"other property exception" to the economic loss 
doctrine applies to bar a negligence claim against a 
subcontractor 
who 
provided 
services 
in 
the 
construction of a house. 
Linden v. Cascade Stone Co., Inc., 2005 WI 113, ¶4, 283 
Wis. 2d 606, 699 N.W.2d 189.  The plaintiffs claimed "faulty 
workmanship in the construction of their house," and alleged 
"breach of contract and warranty stemming from alleged defects 
in the house and delay in completion of the project."  Id., ¶¶1, 
3. 
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product, a new house, rather than one for services."  Linden, 
283 Wis. 2d 606, ¶25.  The Linden court also announced, "We 
conclude that when one contracts with a general contractor to 
build a house and the general contractor subcontracts with 
others to provide various services, the general contract 
controls whether the economic loss doctrine is available as a 
defense. . . . In the present case, we conclude that the general 
contract between the Lindens and Groveland was primarily for a 
product . . . ."  Id., ¶32.   
¶66 Nowhere in Linden is a reference, even in passing, to 
the Mose, Kailin, or Van Lare cases or to a contract or 
transaction relating to real estate.11  It is abundantly clear 
that Linden addressed only the application of the economic loss 
doctrine in the context of a contract to build a house, a 
contract for goods and services.  The Linden court made clear 
that the predominant purpose test specifically related to 
contracts for goods (a house), explaining that  
[t]he predominant purpose test was developed in the 
Uniform Commercial Code (UCC) context when contracts 
that were alleged to be sales (Wis. Stat. ch. 402) 
occurred.  Because the sales chapter of the UCC 
applies 
to 
transactions 
in 
goods, 
Wis. 
Stat. 
§ 402.102, and many contracts involved both goods and 
services, 
it 
was 
necessary 
to 
determine 
which 
component was predominant.   
Linden, 283 Wis. 2d 606, ¶9.   
                                                 
11 The Linden court examined Van Sistine v. Tollard, 95 
Wis. 2d 678, 291 N.W.2d 636 (Ct. App. 1980), which applied the 
predominant purpose test to a contract to install windows, 
install stucco 
siding, reposition appliances, and perform 
finishing. 
No.  2004AP2681.ssa 
 
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¶67 Linden applies to a construction contract, a contract 
involving goods and services, not to a contract for a real 
estate transaction as the phrase "real estate transaction" is 
used in Mose, Kailin, Van Lare, and the present case.  
¶68 Without briefs from the parties on the issue of 
whether the economic loss doctrine should be extended beyond Van 
Lare to the type of real estate transaction at issue in the 
instant case or the claim of intentional misrepresentation, the 
majority opinion holds that the economic loss doctrine is 
applicable to the present noncommercial real estate transaction 
involving at least one unsophisticated party negotiating without 
counsel and without a fully written, bargained-for contract.  
The majority's expansion of the economic loss doctrine beyond 
Van Lare to the present case is unsupported and unwarranted. 
¶69 Irrespective of the fraud-in-the-inducement exception 
to the economic loss doctrine that the majority opinion applies, 
I conclude that the Wickenhausers have a claim for intentional 
misrepresentation.  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. 
¶70 For the reason set forth, I write separately. 
¶71 I am authorized to state that Justices ANN WALSH 
BRADLEY and LOUIS B. BUTLER, JR. join this opinion. 
 
 
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