Opinion ID: 1608413
Heading Depth: 1
Heading Rank: 3

Heading: application of huron tool exception

Text: [5] ¶ 53. Having determined the proper analytical framework for evaluating claims of fraud in the inducement, we now turn to the facts of this case. Our task is to determine whether the fraud involved matters for which risks and responsibilities were extraneous to, or interwoven into, the contract. As discussed in detail below, the alleged misrepresentations in this case were interwoven with the subject matter of the contracts. Therefore, they do not provide a basis for an independent claim under the narrow Huron Tool fraud in the inducement exception to the economic loss doctrine. ¶ 54. The subject of the alleged misrepresentation in this case does not involve the actual Value-Link service, but instead, deals with the responsibility and risk of the 1099 employee, Krinsky. ¶ 55. Here, we find that based on the evidence in the record, the fraud involved matters for which risks and responsibilities were interwoven into the contract. It is clear from the record that the parties expressly and impliedly assigned and allocated the responsibilities and risks for the 1099 employees. ¶ 56. First, The Digicorp Fox Valley Division Sales Program Agreement Section Five states: Conduct of employeesDIGICORP reserves the right to approve all individuals engaged by Contractor in the sale and marketing of Ameritech services covered by this agreement. DIGICORP'S reputation in the industry is mutually agreed to be a valuable asset. If DIGICORP becomes aware of any representations not in conformity with this agreement or sales activities deemed harmful to its reputation or business interests, we will immediately advise Contractor. Contractor agrees to take corrective action, up to and including termination of the employee, to expeditiously address the improper activities or representations. Continuation or recurrence of unacceptable activities will be deemed a material breach of this agreement. Pet'r App. to Opening Br. of Pet. Ameritech at 043 (emphasis added). Section Five of the Sales Program Agreement illustrates that Digicorp, during precontract negotiations, anticipated and allocated the risks and responsibilities associated with entering into an agreement with Ameritech. ¶ 57. Second, the letter from Taylor to the President of Digicorp, Clark, lists the duties and responsibilities of Ameritech and Digicorp 1099 employees. In particular, the letter unequivocally sets forth the criteria that must be met for an Ameritech Authorized Distributor to use sales people employed by another company to sell Ameritech services. [11] In addition to the list of criteria, Taylor included the following statement in the letter: I want to make it clear that Ameritech holds its' [sic] Authorized Distributors responsible for the actions of 1099 sales representatives. Any activity by a 1099 sales person, as with any other sales representative, that is contrary to the standards established by Ameritech, will place in jeopardy your status as an Ameritech Authorized Distributor. The detailed discussion included in this letter demonstrates that both Ameritech and Digicorp understood the terms of their agreement, and had an opportunity to allocate the risks involved during contract negotiations. ¶ 58. Finally, the June 1996 Non-Exclusive Authorized Distributor Agreement between Ameritech and Digicorp, clearly sets forth in Section 5.01 what happens if forged signatures are discovered. Section 5.1(c) states in relevant part: Notwithstanding 5.1(a) and (b) above, it is agreed that Ameritech may terminate this Agreement without notice in the event of . . . submission of any sales agreement by the AD, any of its representatives, or its agents which is subsequently found to contain forged customer signatures or of which the customer denies any knowledge of placing an order with AD. In addition, Sections 1.3 and 6.4 refer to aspects of forgery. [12] ¶ 59. The entire relationship among Ameritech and Digicorp and Bacher was governed by contract. There was a pre-existing authorized distributorship agreement between Ameritech and Digicorp going back to 1993. Next, the April 30, 1996 letter sets forth the certify and approval condition, while emphasizing Digicorp's responsibility for the actions of the 1099 employees. Finally, the June 1996 contract covers a whole variety of duties and responsibilities, and expressly provides explicit terms for termination. It references Ameritech's policies with regard to forgery, and the Authorized Distributor, Digicorp's, duties with regard to forgery. The duties, responsibilities and risks of both Ameritech and Digicorp were set forth in great detail. The parties clearly allocated, by use of the contract terms, the risks and responsibilities of entering into the agreement. ¶ 60. It is clear from this information that the parties expressly and impliedly assigned responsibility and risk for the 1099 employeesthe subject of the alleged misrepresentation. ¶ 61. Contrary to Digicorp's argument, the June 1996 contract between Digicorp and Ameritech was not a new contract, but a modification of a prior one. It was a routine renewal of a pre-existing contract. Even assuming, arguendo, that the misrepresentation made by Taylor with regard to knowledge of Krinsky's past fraudulent behavior, was a material inducement to Digicorp to enter into its replacement agreement with Ameritech, it was part and parcel of an overall allocation of risks and responsibilities for 1099 employees. ¶ 62. This information shows that the alleged misrepresentations by Taylor were interwoven with the subject matter of the contract. The alleged fraud here is similar to the fraudulent misrepresentation made to the plaintiff in Huron Tool. The misrepresentations concerned matters related to the performance of the contract itself, and as such, cannot be found to be extraneous to the contractual dispute. Accordingly, Digicorp is limited to contract remedies. See Huron Tool, 532 N.W.2d at 546. The fraud in the inducement exception to the economic loss doctrine is inapplicable under these circumstances.