Court Opinion

ID: 9663986
Source: CourtListenerOpinion
Date Created: 2023-08-23 23:58:20.917953+00
Date Added: 2024-06-11T18:15:00.621516
License: Public Domain

*539SHIRLEY S. ABRAHAMSON, C.J.
¶ 57. (dissenting). " [T]he most quickly and confoundingly expanding legal doctrine is ... the economic loss rule."1 Like the ever-expanding, all-consuming alien life form portrayed in the 1958 B-movie classic The Blob, the economic loss doctrine seems to be a swelling globule on the legal landscape of this state. According to one commentator, the economic loss doctrine has been an issue in the Wisconsin court of appeals and supreme court 47 times during 2000-2004.2 At the current pace, the economic loss doctrine may consume much of tort law if left unchecked.3
¶ 58. Courtesy of this majority opinion and other opinions of this court, this legal doctrine with modest, or even "obscure"4 beginnings, is fast growing.5 Taking a further step in increasing the scope of the economic loss doctrine, the majority in the instant case delivers a *540significant blow to the vitality of the "other property" exception to the economic loss doctrine.
¶ 59. The economic loss doctrine bars recovery in tort for economic damage "to a product itself or monetary loss caused by the defective product, which does not cause personal injury or damage to other property."6 Although simple to state, the doctrine's meaning and application are confounding litigants, their lawyers, and the courts.7
¶ 60. It is the "other property" exception to the economic loss doctrine that is at issue in the instant case. " '[0]ther property' is a legal term of art."8
¶ 61. The majority opinion takes two actions with respect to the "other property" exception. First, it reaffirms this court's endorsement and use of the "integrated system" concept when evaluating whether a *541claimed loss is damage to "other property."9 This proposition is not controversial; the court unanimously adopted this concept. In Wausau Tile, Inc. v. County Concrete Corp.10 we said that "[d]amage by a defective component of an integrated system to either the system as a whole or other system components is not damage to 'other property' which precludes the application of the economic loss doctrine."11
¶ 62. Second, because "[t]he 'integrated system' concept does not translate well to all situations involving property damage to which the economic loss doctrine logically applies,"12 the majority has to fabricate another theory for broadening the definition of "other property" to fit the present case. The majority joins other courts in adopting "reasonable foreseeability,"13 a fundamental principle of contract damages, and adapting it as the "disappointed expectations" rule to define "other property" in economic loss cases.14
¶ 63. I dissent for three reasons: (1) the policies motivating the creation of the economic loss doctrine are not furthered by dismissing the Grams' tort action against Milk Products (the manufacturer of milk re-placer that killed and injured their calves), with whom the Grams have no contractual relationship; (2) the *542majority opinion's use of the "disappointed expectations" concept to define "other property" is so broad that the economic loss doctrine threatens the strict products liability doctrine; and (3) even under the majority opinion's standard for "other property," summary judgment was inappropriate in the instant case.
HH
¶ 64. The majority opinion bars the Grams from suing Milk Products either in contract or in tort. Milk Products sold the milk replacer to Cargill, which sold the product to the Grams. The Grams and Milk Products have no contractual relationship, and the Grams did not object to the dismissal of the contract action. Therefore, if the Grams cannot bring a tort suit against Milk Products, they cannot sue Milk Products at all. Allowing the Grams to sue Milk Products is not an "end run" around the contract, but rather would allow them to assert an action for a distinct legal wrong against the tortfeasor, Milk Products.
¶ 65. The Grams' tort action against Milk Products is, in my opinion, analogous to the tort action in the Linden v. Cascade Stone Co. case against the subcontractor.15 In Linden, the court expanded the economic loss doctrine to bar a homeowner from suing a subcontractor for defective work, even though the homeowner had no contract with the subcontractor.
¶ 66. As Justice Bradley explained in her dissent in Linden, the economic loss doctrine is a judicially created doctrine whose existence is premised upon three oft-repeated justifications: "(1) to maintain the fundamental distinction between tort law and contract law; (2) to protect commercial parties' freedom to *543allocate 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."16
¶ 67. In the instant case, as in Linden, the doctrine's policies are not furthered by application of the economic loss doctrine to deny an innocent purchaser a cause of action against the defendant-manufacturer who knew or should have known the purchaser's property would be injured by the defendant-manufacturer's tortious conduct.17
I — I I — I
¶ 68. The economic loss doctrine is of recent origin. The scope of the doctrine is still evolving. "[B]e-*544cause there has been much confusion about the scope of this doctrine, it is important to review its legal underpinnings."18
¶ 69. For commercial parties in contractual privity, the economic loss doctrine's disallowing tort damages for purely economic loss (except injury to person or other property) protects the integrity of the contract. We have permitted a tort action in privity of contract situations, however, for certain frauds.19
¶ 70. For those not in contractual privity, strict products liability allows a purchaser to sue a manufacturer for physical injury to person or property as a result of the defective product. The strict products liability doctrine was designed to govern the problem of physical injuries to person or property caused by defective products. The economic loss doctrine was developed for a different purpose, namely, to protect manufacturers from liability for "economic loss," that is, non-physical injury to person or property caused by a defective product beyond those damages compensated through the law of warranties. The purpose of the economic loss doctrine in the product liability arena is to protect the manufacturer from liability for losses to subsequent purchasers resulting from the failure of its product to perform according to the warranty.20 Warranty law thus prevents liability of unknown and unlimited scope.21
*545¶ 71. What constitutes economic loss is not self-evident, because " '[e]conomic loss' is not a self-defining term, and it does not literally mean all monetary losses."22 In Northridge Co. v. W.R. Grace & Co.23 our court explained the distinction between economic loss (to be recovered in a contract action) and physical harm to property (to he recovered in a tort action) as follows:
The plaintiffs' strict products liability claim is not barred, however, simply because the plaintiffs seek damages for repair costs, replacement costs, decreased value, and lost profits in the sale of the centers. While economic loss is measured by repair costs, replacement costs, loss of profits, or diminution of value, the measure of damages does not determine whether the complaint is for physical harm [to property] or economic loss. City of Manchester v. National Gypsum Co., 637 F Supp. 646, 651 (D.R.I. 1986). In other words, the fact that the measure of the plaintiffs' damages is economic does not transform the nature of its injury [to property] into a solely economic loss. Town of Hooksett School Dt. v. W.R. Grace & Co., 617 F. Supp. 126, 131 (D.N.H. 1984).24
¶ 72. "Economic loss" has been described as that loss "resulting from the failure of the product to perform to the level expected by the buyer and commonly has been measured by the cost of repairing or replacing the product and the consequent loss of profits, or by the diminution in value of the product because it does not *546work for the general purposes for which it was manufactured and sold."25
¶ 73. Here the Grams alleged that the product, the milk replacer, was defective in that it did not contain the nutritional value expected. The Grams expected the non-medicated milk replacer to provide nutrition for the calves. The Grams claim they were told that there was no significant difference between the two milk replacers other than medication. The feed did not live up to expectations. The defective feed resulted in the calves not gaining sufficient weight and in a large number of calves dying. We know that the lack of medication was not the cause of the deaths because the calves ceased to die when the Grams substituted real, non-medicated milk for the non-medicated milk replacer.
¶ 74. The damages the Grams seek in the instant case are measured in terms of money, but they are not the costs of replacing or repairing the milk replacer or the diminution in the value of the product. Certainly, the Grams' contract claim for breach of implied warranty is premised on the notion that the non-medicated milk replacer disappointed their expectations. However, the tort claims (strict liability, negligence, and intentional misrepresentation) allege that the milk replacer caused tangible physical injury to property. "[C]laims which allege economic loss in combination with non-economic loss are not barred by the [economic loss] doctrine."26
*547¶ 75. The question the majority opinion presents is whether dead calves are "disappointed expectations" or are "other property" that has been damaged. The majority opinion treats the two as mutually exclusive, concludes that the dead calves are "disappointed expectations," and holds for the defendant. The majority's interpretation of the "other property" exception is so narrow that it is unworkable; almost nothing will qualify for the exception. If applied literally, the majority's articulation of the "other property" exception might completely eliminate the exception to the economic loss doctrine.
¶ 76. To my mind, "disappointed expectations" and "other property" are not mutually exclusive principles. Take, for example, a car dealer's defective car that spontaneously lurches backwards even though the motor has been properly turned off. The defective car driving in reverse destroys the garage door. Since the expectation is that the car will operate only when engaged, will not be self-operating in reverse, and will not spontaneously destroy anything behind it, the majority opinion's disappointed expectations rule would, if applied literally, bar recovery in tort for damage to the garage door.
¶ 77. Or, for example, a real estate developer buys a house from a builder for resale. The developer keeps the house for a period. The house as built has a garage that is equipped with an automatic garage door opener. One day the garage door closes, without prompting, onto the front of the developer's jeep, destroying the jeep. The occupants of the jeep are not injured. Applying literally the "disappointed expectations" standard announced by the majority opinion in the instant case, the developer would not be able to sue the garage door opener manufacturer because the garage door opener *548merely failed to perform as expected. According to the majority opinion:" 'Level of performance' should now be understood to include failed performance,"27 regardless of the harm done to "other property."
¶ 78. Despite the purchaser's "disappointed expectations" with the car that goes in reverse and the garage door that slams shut, I am confident that the majority would hold that the trailer and the jeep are "other property" and the manufacturer is liable under strict products liability.28
¶ 79. Even assuming that "disappointed expectations" might entail the calves' mahiourishment, disappointed expectations cannot include the death of the calves at triple the normal rate any more than it is simply "disappointed expectations" when a pet dog dies as a result of eating dog food that is not as nutritious or as fat-free as advertised. To say dead animals are disappointed expectations suggests that there is no harm to person or property that would not qualify as disappointed expectations. Anytime a defective product fails and then injures someone or something, its owner is obviously disappointed with that product's performance.
¶ 80. Both disappointed expectations and "other property" coexist in these examples and in the instant case. Which of the two should be the governing principle? As I see it, a defendant is liable when he or she places in commerce a defective product that creates an unreasonable risk of injury to property other than the product sold and that injury occurs. The purchaser should not bear this risk of injury. The Grams should *549have an opportunity to prove that the milk replacer was a defective product that created an unreasonable risk of injury to the calves and that injury occurred.
¶ 81. The California Supreme Court explained the principle governing damage to other property as follows:
The distinction that the law has drawn between tort recovery for physical injuries and warranty recovery for economic loss is not arbitrary and does not rest on the "luck" of one plaintiff in having an accident causing physical injury. The distinction rests, rather, on an understanding of the nature of the responsibility a manufacturer must undertake in distributing his products. He can appropriately be held liable for physical injuries caused by defects by requiring his goods to match a standard of safety defined in terms of conditions that create unreasonable risks of harm. He cannot be held for the level of performance of his products in the consumer's business unless he agrees that the product was designed to meet the consumer's demands. A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. He can, however, be fairly charged with the risk that the product will not match his economic expectations unless the manufacturer agrees that it will. Even in actions for negligence, a manufacturer's liability is limited to damages for physical injuries and there is no recovery for economic loss alone.29
¶ 82. The U.S. Supreme Court most recently addressed the issue of "other property" in 1997 in Saratoga Fishing Co. v. J.M. Martinac & Co.30 In Saratoga Fishing, J.M. Martinac & Co. manufactured a *550ship and sold it new to Joseph Madruga.31 Madruga, in turn, added equipment such as netting, a skiff, and other parts so that the ship could be used to fish for tuna.32 A few years later Madruga sold the ship to Saratoga Fishing. Thirteen years of tuna fishing later, the ship caught fire as a result of a defectively designed hydraulic system that was part of the ship as originally built by J.M. Martinac. Saratoga sued J.M. Martinac in tort for damage to the parts and equipment added by Madruga.
¶ 83. In reversing the Ninth Circuit Court of Appeals, the United States Supreme Court held that the ship was the "product itself' and that all the items added to the ship by Madruga were "other property." Accordingly, ruled the U.S. Supreme Court, Saratoga's tort suit could proceed against the original manufacturer, J.M. Martinac.
¶ 84. Saratoga Fishing presents a striking contrast to the majority opinion in the instant case. In rebuking the Ninth Circuit for "creating] a tort damage immunity beyond that set by any relevant tort precedent ... ," the Court cited approvingly three cases in which courts determined the harmed objects were "other property"33 and that therefore remedy could be had in tort.
¶ 85. In one case cited, A.J. Decoster Co. v. Westinghouse Electric Corp.,34 the Maryland high court found that 140,000 chickens killed when a ventilation system for the chicken house malfunctioned were *551"other property." The second case the Court cited was United Air Lines, Inc. v. CEI Industries of Illinois, Inc.,35 in which "[a] warehouse owner recovered for damage to a building caused by a defective roof."36 Finally, the Court cited a case similar to Saratoga Fishing in which damage to added seismic equipment on a ship resulting from an engine fire was actionable in tort.37
¶ 86. The Court emphasized that "[o]ne important purpose of defective-product tort law is to encourage the manufacture of safer products."38 The manufacturer should not be immunized from liability for foreseeable physical damage.39 To allow the ship's manufacturer to escape liability in Saratoga Fishing, the Court asserted, defied "the ordinary rules governing the manufacturer's tort liability."40
¶ 87. The Court did note that the intermediate seller could have included a warranty, but "[n]o court has thought that the mere possibility of such a contract term precluded tort recovery for damage to [a purchaser's] other property."41
¶ 88. The U.S. Supreme Court went on to reject the argument that contract law, if warranties were available, should supplant tort law. The Court wrote that "respondents have not explained why the ordinary *552rules governing the manufacturer's tort liability should be supplanted merely because the [intermediate seller] may in theory incur an overlapping liability in contract."42
¶ 89. Finally, the Court also rejected the argument that manufacturers and distributors would be besieged with tort liability. The Court explained that there are "a host of other tort principles, such as foreseeability, proximate cause, and the 'economic loss' doctrine" that already substantially limit tort liability.43
¶ 90. In contrast with Saratoga Fishing, under the majority opinion's standard in the instant case, tort suits in all three of the cited cases would be barred by the economic loss doctrine if "other property" were redefined as being everything resulting from "disappointed expectations." The damage in all three cases was easily within the purchasers' "disappointed expectations."
¶ 91. Because I would follow the rule set forth in the Saratoga Fishing case, the cases cited therein, and Wausau Tile, I do not join the majority opinion.
r — ¶ h-i HH
¶ 92. The facts of this case lead me to conclude that under the majority's new rule, summary judgment was improperly granted here. The majority opinion acknowledges that determining whether a case is one of disappointed performance expectations is not easy.44
¶ 93. This case reaches us because the circuit court granted summary judgment in favor of Milk *553Products.45 Summary judgment is properly granted when there are no issues of material fact, only questions of law upon which the moving party is entitled to judgment.46
¶ 94. The majority opinion candidly admits that the application of its newly adopted "within-the-contemplation-of-the-parties" standard, that is, the disappointed performance expectations standard, is fact-intensive: "[Application of the rule] will necessarily require the interpretation of the purpose of [the] transaction and the expected uses of [the] product."47 In short, the court must know what the parties' expectations were in order to apply the doctrine correctly. If the majority really means what it says, summary judgment was inappropriate in this case.
¶ 95. Taking the facts in the light most favorable to the Grams, as we must, we know from the record that the Grams expected to get a milk replacer of the same nutritional quality as the one they had successfully used for three years, but non-medicated. We know from Mr. Grams' affidavit that a representative from Cargill told him that Half-Time non-medicated milk replacer had the same nutritional value as the milk replacer the Grams had bought from Cargill for years. The Grams did not expect the mortality rate of their calves to triple. They did not expect their calves to become undernourished on a milk replacer affirmatively represented as being of the same nutritional quality as a product with which they were familiar and had used with success.48
*554¶ 96. Paragraph 53 of the majority opinion deserves special attention. Every sentence in ¶ 53 not only lacks a citation (except the last sentence) but also lacks support in the record. In fact, the record directly contradicts the linchpin of the whole paragraph. According to the majority opinion: "A reasonable farmer would know that switching to an unmedicated milk replacer could cause some increase in calf mortality."49 Does "some increase" in mortality equal one-third of the calves? How does this court know, without testimony, what a reasonable farmer would expect under these circumstances? We know from the record that at least one expert stated that removal of antibiotics would not affect the calves' mortality rate. We can infer from the record that the lack of medication was not the cause of the deaths because calves ceased to die when the Grams substituted real, non-medicated milk for the non-medicated milk replacer. In short, according to the record, the Grams (and probably any reasonable farmer) would not have contemplated that the lack of medication would kill their calves at triple the normal rate.
¶ 97. The record in this case does not indicate that dead calves were an outcome contemplated by either party or by any reasonable farmer, thus making summary judgment inappropriate here.
¶ 98. For the foregoing reasons, I dissent.
¶ 99. I am authorized to state that Justice LOUIS B. BUTLER, JR. joins this opinion.

 Paul J. Schwiep, The Economic Loss Rule Outbreak: The Monster That Ate Commercial Torts, Fla. B.J., Nov. 1995, at 34.

 John J. Laubmeier, Comment, Demystifying Wisconsin's Economic Loss Doctrine, 2005 Wis. L. Rev. 225, 225 n.3.

 See Schwiep, supra note 1, at 40 ("[W]hat is needed is critical analysis of the rule's place and application, rather than the trivial invocation of the rule to stem the tide of commercial tort litigation, in an apparent attempt at judicial tort reform.").

 Laubmeier, supra note 2, at 225.

 The economic loss doctrine can be traced to the California Supreme Court's reasoning in Seely v. White Motor Co., 403 P.2d 145 (Cal. 1965). The United States Supreme Court adopted the California court's reasoning in East River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 871 (1986), and this court adopted the East River reasoning in Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis. 2d 910, 437 N.W.2d 213 (1989), expressly limiting tort liability for defective products to injury caused to persons or damage caused to property other than the defective product itself.

 Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 247, 593 N.W.2d 445 (1999) (quoted source omitted).
Restatement (Third) of Torts § 21 (1998) provides as follows:
Sec. 21. For purposes of this Restatement, harm to persons or property includes economic loss if caused by harm to:
(a) the plaintiffs person;
(b) the person of another when harm to the other interferes with a legally protected interest of the plaintiff protected by tort law; or
(c) the plaintiffs property other than the defective product itself.

 "The economic loss rule has become a confusing morass." Indem. Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532, 544 (Fla. 2004) (Cantero, J., concurring).

 Fireman's Fund McGee Marine Underwriters v. A & B Welding & Mfg., Inc., 2005 WL 568055, at *3 (W.D. Wis. Mar. 8, 2005).

 Majority op., ¶ 28.

 Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 249, 593 N.W.2d 445 (1999).

 Wausau Tile, 226 Wis. 2d at 249 (citing E. River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 867-68 (1986) and other cases).

 Majority op., ¶ 31.

 See Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854).

 Majority op., ¶ 43.

 Linden v. Cascade Stone Co., 2005 WI 113, 283 Wis. 2d 606, 699 N.W.2d 189.

 Linden, 283 Wis. 2d 606, ¶ 40 (Bradley, J., dissenting) (quoting Ins. Co. of N. Am. v. Cease Elec., 2004 WI 139, ¶ 38, 276 Wis. 2d 361, 688 N.W.2d 462). See also Van Lore v. Vogt, Inc., 2004 WI 110, ¶ 17, 274 Wis. 2d 631, 683 N.W.2d 46.

 Damages available against Cargill under contract law are not necessarily the same as damages recoverable against Milk Products under tort law. Restatement (Second) of Contract § 351 cmt a. at 136 (1979). Damages for breach of warranty against Cargill are covered by Wis. Stat. § 402.714, relating to accepted goods, and § 402.715(2)(b), relating to consequential damages available for any "[i]njury to person or property proximately resulting from any breach of warranty."
We do not know the scope of the damages for which Cargill may be liable because Cargill is not a party and the contract action is not before us. There may also be contractual limitations on the Grams' right to recover against Cargill. As the majority notes, "Contracts give the parties an opportunity to limit the scope and amount of liability." Majority op., ¶ 14 n.3. The majority cannot know, see majority op., ¶ 55 n.12, before proceedings against Cargill are completed whether the Grams will be compensated fully in contract for the allegedly defective product.

 Indemnity Ins. Co. of N. Am. v. Am. Aviation, Inc., 891 So. 2d 532, 536 (Fla. 2004).

 See Kaloti Enters. v. Kellogg Sales Co., 2005 WI 111, 283 Wis. 2d 555, 699 N.W.2d 205.

 Seely v. White Motor Co., 403 P.2d 145, 150 (Cal. 1965).

 Seely, 403 P.2d at 150.

 Fireman's Fund McGee Marine Underwriters v. A & B Welding & Mfg., Inc., 2005 WL 568055, at *3 (W.D. Wis. March 8, 2005).

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

 Northridge Co. v. W.R. Grace & Co., 162 Wis. 2d 918, 931-32, 471 N.W.2d 179 (1991).

 Agristor Leasing v. Guggisberg, 617 F. Supp. 902, 907-08 (D. Minn. 1985) (emphasis added) (quoting Minneapolis Soc'y of Fine Arts v. Parker-Klein Assocs. Architects, 354 N.W.2d 816, 820-21 (Minn. 1984) (overruled by Hapka v. Paquin Farms, 458 N.W.2d 683 (Minn. 1990))).

 Wausau Tile, 226 Wis. 2d at 247.

 Majority op., ¶ 41.

 "Such damage [to other property] is considered so akin to personal injury that the two are treated alike." E. River S.S. Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 867 (1986).

 Seely, 403 P.2d at 151 (emphasis added).

 Saratoga Fishing Co. v. J.M. Martinac & Co., 520 U.S. 875 (1997).

 Id. at 877.

 Id.

 Id. at 880-81.

 A.J. Decoster Co. v. Westinghouse Elec. Corp., 634 A.2d 1330 (Md. 1994).

 United Air Lines, Inc. v. CEI Indus. of Ill., Inc., 499 N.E.2d 558 (Ill. Ct. App. 1986).

 Saratoga Fishing, 520 U.S. at 880.

 Nicor Supply Ships Assocs. v. Gen. Motors Corp., 876 F.2d 501 (5th Cir. 1989).

 Saratoga Fishing, 520 U.S. at 881.

 Id.

 Id. at 882-83.

 Id. at 882.

 Id. at 882-83.

 Id. at 884.

 Majority op., ¶ 54.

 Majority op., ¶ 1.

 Badger State Bank v. Taylor, 2004 WI 128, ¶ 12, 276 Wis. 2d 312, 688 N.W.2d 439.

 Majority op., ¶ 54.

 See majority op., ¶¶ 50-51.

 Majority op., ¶ 53.