Court Opinion

ID: 9664048
Source: CourtListenerOpinion
Date Created: 2023-08-24 00:00:49.893008+00
Date Added: 2024-06-11T18:15:01.472514
License: Public Domain

ANN WALSH BRADLEY, J.
¶ 33. (dissenting). The unfortunate result of the majority opinion today is the limitation of legal rights for all homeowners in Wisconsin.
¶ 34. Prior to this decision, a homeowner generally could not sue a subcontractor under contract law for economic loss because of a lack of contract between them.1 For years in this state, however, a homeowner could bring a direct claim in negligence against the *629subcontractor for damages sustained from faulty workmanship.2
¶ 35. Now, following this decision, a homeowner is likewise barred from suing a subcontractor under tort law for economic loss. Thus, an aggrieved homeowner seeking to pursue a direct remedy for wrongs caused by a subcontractor, will be frustrated at every turn. Because the majority opinion expands the economic loss doctrine well beyond its intended purposes, limits the rights of homeowners, and encourages needless litigation, I respectfully dissent.
I — I
¶ 36. Although the facts in this case generally can be described as routine, the majority's resolution of the parties' dispute is far from routine. The majority uses one party's contract to bar the tort claims of another with whom there was no contract. It concludes 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." Majority op., ¶ 32. Accordingly, the majority uses the Lindens' contract with Groveland to bar the Lindens' tort claims against Cascade and Fern.
¶ 37. Through its decision, the majority effectively constructs an impenetrable wall between homeowners and subcontractors. Homeowners cannot di*630rectly sue the subcontractor for economic loss in either contract or tort. Instead of being able to sue the subcontractor directly, the majority now requires a general contractor to stand in as a middleman for purposes of liability. This new arrangement is required, the majority insists, because of the economic loss doctrine. I conclude that the majority has once again expanded the economic loss doctrine well beyond its principled origins of products liability. When subjected to the lens of reality, the policy considerations underlying the doctrine do not support its application here.
f — l I — I
¶ 38. As noted by the majority, the economic loss doctrine is a judicially created doctrine that seeks to preserve the distinction between contract and tort. Id., ¶ 6. From its beginning, the doctrine "has been based on the understanding that contract law, and particularly the law of warranty, is better suited than tort law for dealing with purely economic loss in the commercial arena." Insurance Co. of N. America v. Cease Electric Inc., 2004 WI 139, ¶ 15, 276 Wis. 2d 361, 688 N.W.2d 462.
¶ 39. Wisconsin first recognized the economic loss doctrine in Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis. 2d 910, 437 N.W.2d 213 (1989). We held, in the context of a products liability case, that "a commercial purchaser of a product cannot recover solely economic losses from the manufacturer under negligence or strict liability theories, particularly ... where the warranty given by the manufacturer specifically precludes the recovery of such damages." Id. at 921.
¶ 40. Three policies serve as a basis for the doctrine's application: "(1) to maintain the fundamen*631tal distinction between tort law and contract law; (2) to protect commercial parties' freedom to allocate economic risk by contract; and (3) to encourage the party best situated to assess the risk of economic loss to assume, allocate, or insure against that risk." Cease Electric, 276 Wis. 2d 361, ¶ 38.1 cannot agree with the majority's conclusion that these policies support the result reached here.
A
¶ 41. The majority concludes that the first policy of maintaining the distinction between tort and contract law is furthered by focusing on "the contract for which the purchaser bargained." Majority op., ¶ 17. But where does the risk of blurring that distinction between contract and tort arise when there is no contract with the alleged tortfeasor?
¶ 42. Allowing the Lindens to maintain tort claims against Cascade and Fern would not allow them to make an "end run" around their contract. Indeed, the Lindens brought their tort action against Cascade and Fern precisely because there was no contract between them and therefore no contractual remedies were available to them.
¶ 43. In this case, there was no provision in the Groveland general contract prohibiting the Lindens from pursuing negligence claims against these subcontractors. By now using that contract to preclude the Lindens' tort actions, the majority has effectively rewritten its terms. Such a result does nothing to maintain a distinction between tort and contract law. Rather, it serves only to further blur the line.
*632B
¶ 44. In examining the second policy of protecting the "commercial parties' freedom to allocate economic risk by contract," the majority ignores the fact that the Lindens are not commercial parties. It warns that allowing the Lindens' tort action against the subcontractors would "get around the warranties and remedies they had already bargained for" with the general contractor. Id.
¶ 45. Apparently, the majority believes that the Lindens were free to anticipate the risks with the subcontractors, allocate those risks, and bargain accordingly. This reasoning can best be described as "long on philosophy but short on reality." State v. Reed, 2005 WI 53, ¶ 75, 280 Wis.2d 68, 695 N.W.2d 315 (Prosser, J., concurring).
¶ 46. The majority would have us pretend that all home contracting jobs, regardless of the size, should be handled like sophisticated commercial transactions. What happens when a homeowner wants a new deck added to the cottage and hires a local carpenter, who in turn will get local subcontractors to do the electrical, painting, and landscaping?
¶ 47. Before engaging in the negotiations regarding the allocation of risk, the carpenter and the homeowner should first determine what risks they are allocating. Is the carpenter providing a product (a new deck) or is it a service? In answering this question, the homeowner and carpenter should apply the predominant purpose test. According to the majority, they should consider both "quantitatively objective and subjective factors." Majority op., ¶ 18. They must analyze whether the work performed by the local subcontractors is subject to the "integrated systems limitation of *633the 'other property' exception to the economic loss doctrine." Id., ¶ 26. This kind of negotiation may be part of the reality of the majority's world, but I submit it is not part of the reality of many homeowners in this state.
¶ 48. In theory, if homeowners want to protect themselves against the possibility that the general contractor may be financially unable to remedy shoddy work done by the subcontractors, they can seek to obtain contract warranties directly from each subcontractor. In practice, however, this approach is problematic because homeowners often do not know beforehand with whom the general contractor will be subcontracting. They may not be able to find out this information because general contractors themselves may not yet know.
¶ 49. Thus, in the present case, the Lindens had no opportunity to negotiate with the subcontractors and allocate risk accordingly. Nevertheless, the majority would have the Lindens negotiate with the general contractor for contingencies that might arise involving the unknown subcontractors. In reality, homeowners likely will fail to allocate risk for an unanticipated eventuality and will be limited by this decision to recovery based on what they managed to anticipate.
C
¶ 50. The final policy reason on which the majority rests its decision is that the economic loss doctrine views the purchaser as the "party best situated to assess the risk of economic loss, to assume, allocate, or insure against that risk." Id., ¶ 16. The Lindens, it is asserted, were in the best position to anticipate "the risk of faulty workmanship" and thus were in the best position to "bargain for coverage" of that risk. Id., ¶ 17.
*634¶ 51. But is a homeowner truly the "party best situated" to predict and prevent the risk of a subcontractor's sub-standard work? Is it not, in fact, subcontractors who can best anticipate and control the quality of their own work?
¶ 52. In reality, the homeowner is little more than the "party best situated" to be damaged by shoddy workmanship. The majority seems to believe that the Lindens, as the party that faced the greatest risk, should have accounted for that risk in their bargaining with the general contractor. But applying the economic loss doctrine on the assumption that they did account for that risk, of course, begs the very question.
rH HH J-H
¶ 53. Although limiting the rights of homeowners in this state, the majority sees nothing burdensome with such a result. It notes that "[The Lindens] had contractual remedies against Groveland, who in turn had its own remedies against the subcontractors." Id. This conclusion casts a world of grays in black and white.
¶ 54. One can easily imagine scenarios where a homeowner does not wish to sue a general contractor. Maybe the contractor is a relative or a family friend. Perhaps the homeowners are generally satisfied with the work of the contractor and do not wish to subject an innocent contractor to a bitter legal dispute. Yet the majority insists that a potentially innocent third party, the contractor, be brought into litigation as a middleman, all in the name of the economic loss doctrine. It is not good public policy to require that suit be brought against an innocent party or someone you do not want to sue in order to get at the person responsible for the *635damages. Such an approach encourages needless litigation and discourages settlement.
¶ 55. Ironically, it was the Lindens' settlement with the contractor Groveland that proved to be their greatest mistake here. Because they settled with the one party who, according to the majority, could sue the allegedly negligent subcontractors, the Lindens will not be made whole. In fact, when pressed by this court at oral argument, counsel for Fern conceded that his client had not yet paid anything to anybody. I conclude that discouraging settlement and promoting needless litigation furthers no worthwhile policy goal.
¶ 56. Finally, the majority attempts to assuage readers' fears by suggesting that homeowners may potentially enforce contracts between general contractors and subcontractors as third-party beneficiaries of those contracts. Id., ¶ 31. Although it is true that a third-party beneficiary action is not a new theory of recovery in Wisconsin, we have never extended it to a context such as this. Indeed, the majority acknowledges as much, noting that this court has "never addressed whether a third-party beneficiary action by a homeowner could lie against a subcontractor, and if so, under what circumstances it would be appropriate." Id.
¶ 57. The majority cites an article for the proposition that some jurisdictions permit claims by a homeowner against a subcontractor because "the subcontractor has agreed to perform an obligation that the [general] contractor owes to the owner." Id. (citing Melvin Aron Eisenberg, Third-Party Beneficiaries, 92 Colum. L. Rev. 1358, 1403 (1992)). However, the sentence upon which the majority relies is taken from a paragraph rejecting that very premise. Although the jurisdictions are split, the article explains the "better view":
*636It might be argued that an owner is a creditor beneficiary of the contract between the prime contractor and the subcontractor, on the theory that the subcontractor has agreed to perform an obligation that the prime contractor owes to the owner. Although the question is certainly not free from doubt, the better view seems to be that taken by Corbin: [C]ontracts between a principal building contractor and subcontractors . . . are made to enable the principal contractor to perform; and their performance by the subcontractor does not in itself discharge the principal contractor's duty to the owner with whom he has contracted. The installation of plumbing fixtures or the construction of cement floors by a subcontractor is not a discharge of the principal contractor's duty to the owner to deliver a finished building containing those items .... The owner is .. . [therefore not] a creditor beneficiary ....
Eisenberg at 1403-04 (citing 4 Corbin on Contracts, § 779D, at 46-47) (emphasis added).
¶ 58. Corbin's position that the homeowner is not a third-party beneficiary is supported by the Restatement (Second) of Contracts § 302 (1981). The discussion, through an illustration, concludes that the owner is only an "incidental beneficiary" of the general contractor's agreement with the subcontractor — not a third-party beneficiary.3
¶ 59. This discussion of an "incidental beneficiary" is consistent with the current law of Wisconsin: "A third party cannot maintain an action as a third party beneficiary if under the contract his *637was only an 'indirect benefit, merely incidental to the contract between the parties.'" Pappas v. Jack O.A. Nelson Agency, Inc., 81 Wis. 2d 363, 370, 260 N.W.2d 721 (1978) (quoting Schell v. Knickelbein, 77 Wis. 2d 344, 348-49, 252 N.W.2d 921 (1977)).
¶ 60. Apparently, feeling some unease with the consequences of its decision, the majority would now have us recognize a new contract theory of recovery in this context. Although the circuit court here dismissed the Lindens' contract action, the majority nevertheless suggests that the Lindens could pursue a contract action as a third-party beneficiary.
¶ 61. Given that the homeowner now can pursue neither a traditional tort action nor a traditional contract action, I invite in this context the new theory of recovery advanced by the majority. When the issue of whether a homeowner can maintain a third-party beneficiary action against a subcontractor is presented, the majority's commitment to providing such a remedy can be assessed. We will then be able to determine whether its discussion here is more than an illusory remedy designed to make the majority's position appear more palatable.
IV
¶ 62. In the end, the majority's decision excises subcontractors from the pool of those who would face tort liability and places them safely behind the wall of the economic loss doctrine. Homeowners who were previously without contract remedies against subcontractors have now lost their direct tort claims for economic loss as well.
¶ 63. Those dedicated to the unfettered expansion of the economic loss doctrine warn of contract law "drowning in a sea of tort." Indeed, that has become *638their mantra. Yet, they are blind to the excesses of their fervor that results, like here, in tort jurisprudence "drowning in a sea of contract." The law is to develop incrementally. Yet, this recently created judicial doctrine has devoured generations of common law.
¶ 64. Some courts have declined to adopt the economic loss doctrine.4 Others, once advocating its expansion are now signaling a retreat. The Florida Supreme Court, for example, readily acknowledged that it has gone too far beyond the doctrine's original purpose. It stated, "[ujnfortunately. .. our subsequent holdings have appeared to expand the rule beyond its principled origins and have contributed to applications of the rule ... to situations well beyond our original intent." Moransais v. Heathman, 744 So. 2d 973, 980 (Fla. 1999).
¶ 65. Perhaps a day will come when this court will rein in this recent evolution of the economic loss doctrine and "return to the doctrine's principled roots."5 Perhaps a day will come when this court, like the Florida Supreme Court, will realize that its holdings "have contributed to applications of the rule ... to situations well beyond our original intent." Id. Unfortunately for homeowners of this state, that day is not today.
¶ 66. I am authorized to state that Chief Justice SHIRLEY S. ABRAHAMSON and Justice LOUIS B. BUTLER, JR. join this dissent.

 See, e.g., Jacob v. Russo Builders, 224 Wis. 2d 436, 592 N.W.2d 271 (Ct. App. 1999) (owners of a newly built house sued the general contractor, the masonry subcontractor, and the subcontractor's comprehensive general liability insurer for damages arising from the subcontractor's faulty work).

 Illustration 19 from the Restatement (Second) of Contracts § 302 (1981) states an example of an incidental beneficiary: "A contracts to erect a building for C. B then contracts with A to supply lumber needed for the building. C is an incidental beneficiary of B's promise, and B is an incidental beneficiary of C's promise to pay A for the building."

 See, e.g., Blagg v. Fred Hunt Co., 612 S.W.2d 321 (Ark. 1981); Jim's Excavating Service, Inc. v. HKM Associates, 878 P.2d 248 (Mont. 1994).

 R. Thomas Cane & Sheila Sullivan, The Future of the Economic Loss Doctrine in Wisconsin, 78 Wisconsin Lawyer 5, 63 (May 2005).