Court Opinion

ID: 9517732
Source: CourtListenerOpinion
Date Created: 2023-08-07 00:30:05.912779+00
Date Added: 2024-06-11T12:07:24.362970
License: Public Domain

ANN WALSH BRADLEY, J.
¶ 45. (dissenting). This is a case that can affect every single person who purchases a home in Wisconsin. For many citizens of this state, buying a home will be one of the most important purchases that they will make in their lifetime.
¶ 46. According to the majority, a person selling a home can look the buyer in the eye, lie about the condition of the home, and escape legal consequences in tort for the lie because of the economic loss doctrine.
¶ 47. Wisconsin has the dubious distinction of being the only state in the entire country to have expanded this judicially created doctrine in such a fashion. The majority has taken a doctrine that originally applied in a very narrow context — commercial transactions for products under warranty — and has now used it to prevent homebuyers from recovering damages in tort caused by the misrepresentations of fraudulent sellers.
¶ 48. Contrary to its protestation, the majority is not compelled to reach this unfortunate result. No legislature enacted a law compelling this conclusion. The majority is applying its own judge-made doctrine.
¶ 49. Likewise, Wisconsin case law does not compel such an outcome. The justifications for expanding *737the reach of the economic loss doctrine do not apply here. Rather, the case law shows that the economic loss doctrine ought not apply to the purchase of homes by private individuals.
¶ 50. The majority downplays the reach of its decision by noting that Below may still have a remedy under Wis. Stat. § 100.18. Although Below may still have a remedy here, the majority opinion ignores cases in which victims of fraud will be remediless.
¶ 51. Rather than apply this judicially created doctrine that allows defrauding sellers to escape liability in tort, I would instead heed the advice of amicus Wisconsin Realtors Association (Realtors). They warn that the application of the economic loss doctrine here is bad for the Wisconsin real estate market and bad for Wisconsin consumers.
¶ 52. Because the majority's application of the economic loss doctrine, which protects sellers who lie about the condition of the home, is neither compelled by the law nor supported by good public policy, I respectfully dissent.
HH
¶ 53. Boiled down, the majority's argument is that it is compelled to reach this result: "the case law on the [economic loss doctrine] leads us to the result" that the doctrine applies to home purchases by private individuals. Majority op., ¶ 26. It maintains that under this court's decision in Wickenhauser v. Lehtinen, 2007 WI 82, 302 Wis. 2d 41, 734 N.W.2d 855, the economic loss doctrine applies to transactions for all "noncommercial" real estate, including residential real estate. Majority op., ¶ 36. The majority further determines that the misrepresentation here does not fall within the narrow *738fraud in the inducement exception to the economic loss doctrine adopted by this court in Kaloti Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, 283 Wis. 2d 555, 699 N.W.2d 205. Majority op., ¶ 39.
¶ 54. However, the cases do not lead to the majority's result. The justifications that this court has proffered for the application of the economic loss doctrine do not apply in the context of private home buying.
¶ 55. The economic loss doctrine was first recognized by this court in Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis. 2d 910, 437 N.W.2d 213 (1989). That case involved a commercial purchaser of a product, construction equipment, that carried a manufacturer's warranty. The purchaser sued the manufacturer in tort for lost profits and repair costs when the equipment failed. Id. The warranty "specifically preclude[d] the recovery of such damages," and this court determined that the economic loss doctrine precluded recovery in tort. Id. at 921.
¶ 56. In Daanen & Janssen v. Cedarapids, Inc. we applied the doctrine in an action between commercial parties to bar recovery in tort for economic losses resulting from failure of a product. 216 Wis. 2d 395, 397-98, 573 N.W.2d 842 (1998). We explained that applying the economic loss doctrine to tort actions between commercial parties was based on three policies: to maintain the distinction between tort and contract law, "to protect commercial parties' freedom to allocate economic risk by contract," and "to encourage the party best situated to assess the risk [of] economic loss, the commercial purchaser, to assume, allocate, or insure against that risk." Id. at 403 (emphasis added).
¶ 57. This court declined to extend the doctrine to cases involving contracts for services in Ins. Co. of N. *739Am. v. Cease Elec. Inc., 2004 WI 139, 276 Wis. 2d 361, 688 N.W.2d 462. We explained that a key rationale for applying the economic loss doctrine involving contracts for products is the protection afforded under the Uniform Commercial Code (U.C.C.)1 to manufacturers and purchasers of products. Id., ¶¶ 29-36.
¶ 58. The current case, of course, involves neither a contract between commercial parties, a contract to purchase a product, a warranty, nor the protections of the U.C.C. It involves a private individual's purchase of a home. The policies underwriting the doctrine in other contexts do not support applying it to home purchases. Private individuals buying a home are not as well suited to assess and allocate the risks as commercial parties or the purchasers of products. That is especially true with respect to the risks associated with the possibility of being defrauded, a point more fully discussed below.
¶ 59. Nonetheless, the majority maintains that the economic loss doctrine applies to the residential real estate transaction here based upon this court's decisions in Van Lare v. Vogt, Inc., 2004 WI 110, 274 Wis. 2d 631, 683 N.W.2d 46, Linden v. Cascade Stone Co., 2005 WI 113, 283 Wis. 2d 606, 699 N.W.2d 189, and Wickenhauser, 302 Wis. 2d 41. All three cases are inapt.
¶ 60. In Van Lare we applied the economic loss doctrine to bar recovery for strict liability misrepresen*740tation in the context of a transaction for commercial real estate — a gravel pit. 274 Wis. 2d 631, ¶ 2. Our decision was premised on the fact that the case involved a "bargained-for contract for the sale of commercial-use land between two sophisticated parties represented by counsel during the negotiation process." Id., ¶ 21. We emphasized that a foundational premise of the economic loss doctrine is that contract law is better suited than tort law "to deal with purely economic loss in the commercial arena." Id., ¶ 25 (emphasis added). Accordingly, we concluded that there was no exception to the doctrine for strict liability misrepresentation "in a purely commercial setting." Id., ¶ 28.
¶ 61. Van Lare, however, tells us nothing about whether the economic loss doctrine should apply in the current case. This case does not involve the sale of commercial-use land like a gravel pit; rather, it involves the purchase of a home. It does not involve negotiation between two sophisticated parties represented by counsel during negotiations. The transaction did not take place in a "purely commercial setting." The cause of action is fraud, not strict liability misrepresentation. In other words, this case is nothing like Van Lare.
¶ 62. Linden is similarly inapplicable. I,t involved a contract for the construction of a house. 283 Wis. 2d 606, ¶ 1. This court determined that a contract for the construction of a house was a contract for a product, and that the economic loss doctrine applied on that basis. Id., ¶ 25. The current case does not involve a contract for the purchase of a product, it is a contract for real estate.
¶ 63. From the majority's discussion here, one would think that this court considered the contract in Linden to be a real estate transaction. It describes Linden as occurring "[i]n a context that involved resi*741dential real estate," and states that "we decided that the [economic loss doctrine] barred negligence claims in the real estate setting." Majority op., ¶ 29.
¶ 64. The implication of the majority's careful phrasing is that this court actually viewed the case as a real estate case. The language of the opinion tells a different story: Linden was decided on the ground that the construction contract was a contract for a product. The concept of real estate never entered the equation. The words "real estate" do not even occur in the Linden opinion.
¶ 65. The primary case on which the majority relies for its decision to apply the economic loss doctrine to home buying is Wickenhauser. The relevance of Wickenhauser to this case is dubious, as neither party contended that the doctrine applied to bar a cause of action. 302 Wis. 2d 41, ¶ 39. The case was instead about election of remedies. Id., .%% 1-2.
¶ 66. Wickenhauser did not even involve the purchase of a home or the purchase of residential real estate. Rather, it involved an option to sell farmland. Id., ¶¶ 1, 7. It is unclear why the majority concludes that a case about a transaction involving farmland dictates the outcome of a case involving a contract for the purchase of a home.2
¶ 67. More importantly, the Wickenhauser majority was adamant that it did not extend the economic loss doctrine into contexts beyond those already estab*742lished in this state by Linden. Id., ¶ 42 n.15. As explained above, the application of the economic loss doctrine in Linden was based on the determination that the contract for the construction of a house was a contract for a product. 283 Wis. 2d 606, ¶ 25.
¶ 68. We should take the Wickenhauser majority at its word that it did not extend the application of the economic loss doctrine any further than Linden. In other words, the doctrine should apply to contracts for products that occur "in the real estate setting." Majority op., ¶ 29; Wickenhauser, 302 Wis. 2d 41, ¶ 42 n. 15; Linden, 283 Wis. 2d 606, ¶ 25. We were explicit in Van Lare that a contract for real estate is not a contract for a product. 274 Wis. 2d 631, ¶ 2. Because this case involves a contract for real estate, and not a contract for a product, Linden and Wickenhauser do not require that the economic loss doctrine bar recovery in tort here.
¶ 69. None of the rationales set forth in our cases applying the economic loss doctrine extends to home purchases by private individuals. Such purchases are not made between commercial parties, a residential real estate transaction is not a contract for a product, and residential real estate transactions are protected by neither manufacturer warranties nor the U.C.C. The real estate contexts in which the doctrine has been applied have involved transactions for commercial-use land between two sophisticated parties represented by counsel during the negotiation process (as in Van Lare), a contract for a product (as in Linden), or a transaction involving farmland in which the majority adamantly denied that it extended the doctrine beyond Linden (as in Wickenhauser).
¶ 70. Thus, the majority has extended the application of this judge-made doctrine even though the cases do not compel this extension.
*743II.
¶ 71. The problems with the majority opinion go beyond its execution of the economic loss doctrine to include the purchase of homes by private individuals. The expansion of this doctrine is exacerbated by the majority's application of the narrow-rather than the broad-fraud in the inducement exception to the economic loss doctrine. Under the narrow exception a homebuyer's claim can be barred even when the purchase was made based on the lies of the seller.
¶ 72. As the majority observes, in Kaloti this court adopted a narrow exception to the application of the economic loss doctrine for fraudulent misrepresentation claims. Under this exception an action for fraudulent inducement of a contract is precluded by the economic loss doctrine if the misrepresentation is "interwoven with the quality or character of the goods for which the parties contracted or otherwise involved performance of the contract." Kaloti, 283 Wis. 2d 555, ¶ 31.
¶ 73. It is difficult to discern when, if ever, fraudulent inducement to a contract is "extraneous to, rather than interwoven with, the contract." Majority op., ¶ 39 (quoting Kaloti, 283 Wis. 2d 555, ¶ 42); see Ralph C. Anzivino, The Fraud in the Inducement Exception to the Economic Loss Doctrine, 90 Marq. L. Rev. 921, 935-36 (2007) (explaining the difficulty of how to apply the narrow exception). Beyond the obvious difficulty in the application of this test, it is simply bad public policy to bar fraudulent inducement claims. Most states recognize this.
¶ 74. The majority of states addressing the question have adopted a broad fraud exception: the economic loss doctrine does not bar claims based on fraud.3 *744Wisconsin is one of only three states that have adopted the narrow exception to the economic loss doctrine. The courts of the other two states have either not deployed or have declined to use this narrow exception to bar claims for fraudulently inducing the purchase of residential real estate.
¶ 75. The Michigan court of appeals adopted the narrow approach in Huron Tool & Eng'g Co. v. Precision Consulting Servs., Inc., 532 N.W.2d 541 (Mich. Ct. App. 1995). The supreme court of Michigan has not yet addressed the issue, and Michigan courts have not deployed the narrow exception to bar fraudulent inducement claims in the context of residential real estate transactions.
¶ 76. The only other state supreme court nominally adopting the narrow exception to the economic loss doctrine is Florida. HTP, Ltd. v. Lineas Aereas Costarricenses, 685 So. 2d 1238, 1239-40 (Fla. 1996). Even so, the court in HTP held that a claim for fraudulent inducement constituted a tort independent from the underlying contract and, therefore, was not barred by the economic loss rule. Id. at 1240.
¶ 77. Additionally, Florida courts have not applied the exception as narrowly as the majority does in the present case. Relying on the reasoning of HTP, the Florida court of appeals has determined that in a contract for residential real estate a "fraudulent inducement claim is not barred by the economic loss [doctrine]." Swope v. Dimarco, 886 So. 2d 270, 272 (Fla. Dist. Ct. App. 2004) (emphasis added).4 With the present case, therefore, Wisconsin obtains the dubious distinc*745tion of being the only state in the country that bars recovery in tort for fraudulently inducing the purchase of homes by private individuals.
¶ 78. Barring the tort claims of defrauded home-buyers is bad public policy. It is anathema to the public's interest in truth telling in matters of commerce. As the Florida supreme court aptly stated in HTP, the interest protected by fraud claims is the need for truth in human relationships generally and in business relationships specifically.
[T]he interest protected by fraud is society's need for true factual statements in important human relationships, primarily commercial or business relationships. More specifically, the interest protected by fraud is a plaintiffs right to justifiably rely on the truth of a defendant's factual representation in a situation where an intentional lie would result in loss to the plaintiff.
HTP, 685 So. 2d at 1240 (internal quotation and citation omitted).5
*746¶ 79. Similarly, the principles underlying the economic loss doctrine are thwarted by barring claims of the victims of fraud. The purpose of the economic loss doctrine is to preserve parties' "freedom to allocate economic risk by contract," and "to encourage the party best situated to assess the risk [of] economic loss ... to assume, allocate, or insure against that risk." Daanen, 216 Wis. 2d at 403.
¶ 80. However, it is impossible for parties to allocate risks based on fraudulently induced contracts. Parties entering a contract "agree upon the rules and regulations which will govern their relationship; the risks inherent in the agreement and the likelihood of its breach. .. . [E]ach trusts the other's willingness to keep his word and honor his commitments . . . ." Robinson Helicopter Co., Inc. v. Dana Corp., 102 P.3d 268, 275 (Cal. 2004). Fraud falls outside of the scope of risks assumed and allocated for in a contract.
¶ 81. Placing the burden on the defrauded party to assess the risk is counterproductive. The party best situated to assess the risk of fraud is the party committing the fraud, not the party that is the victim of the fraud.
¶ 82. This is particularly true in the context of the purchase of homes by private individuals. As amicus Realtors recognizes in its brief, people purchasing homes are often neither sophisticated in negotiation nor represented by counsel. The seller of a home has greater information, and the buyer relies on the seller to be truthful.
*747I — I 1 — I H — I
¶ 83. The majority downplays the consequences of its decision by noting that Below may still have a remedy under Wis. Stat. § 100.18. Majority op., ¶ 5. In doing so it ignores the cases in which there will be no remedy.
¶ 84. The facts underlying a recent court of appeals decision illustrate the problem. See Aslani v. Country Creek Homes, Inc., No. 2007AP503, unpublished slip op. (Wis. Ct. App. January 29, 2008) (petition for review pending).6 Country Creek built 52 new homes in Oak Creek, a suburb of Milwaukee, in 1996 and 1997. Prior to August 1997, the homes had been sold to the 52 plaintiffs in the case.
¶ 85. In October 2005, a home inspector hired by one of the owners discovered that water had penetrated and rotted the roof to such a degree that the inspector's foot went through the roof. The same problem was then discovered in each of the other residences. The roofs had not been properly constructed because felt paper, required to be placed under the shingles, had not been installed. The plaintiffs alleged fraudulent misrepresentation and brought suit in April 2007, asserting contract, tort, and § 100.18 causes of action. The majority's position here leaves the victims remediless.
¶ 86. Contract claims have a six-year statute of limitations. Wis. Stat. § 893.43. Claims accrue at the time of the breach, regardless of when the breach is discovered. CLL Assocs. Ltd. P'ship v. Arrowhead Pac. *748Corp., 174 Wis. 2d 604, 609, 497 N.W.2d 115 (1993). Thus, the contract statute of limitations had expired by the time of the lawsuit.
¶ 87. Section 100.18 claims are subject to a three-year statute of repose, which accrues at the time of the violation. Wis. Stat. § 100.18(ll)(b)3. This too had expired at the time of the lawsuit.
¶ 88. Tort claims are subject to a six-year statute of limitations, but in contrast to contract and § 100.18 claims, they accrue when the injury is (or should have been) discovered. Wis. Stat. § 893.52; Hansen v. A.H. Robins, Inc., 113 Wis. 2d 550, 335 N.W.2d 578 (1983). The plaintiffs' tort claims would not have expired. Nonetheless, the majority's view of the economic loss doctrine bars the claims, even if their purchases were fraudulently induced.
¶ 89. The majority asserts that Below may "attempt again to file and serve an amended complaint" containing breach of contract claims. Majority op., ¶ 12.1 do not opine on the likelihood of success of such an "attempt" given the procedural history of this case. That history reveals that the circuit court has previously granted a motion to amend the complaint to add a contract claim, then months later dismissed the amended complaint for failure to file and serve. The court of appeals has already affirmed the dismissal of the contract claim and Below declined to seek review of that dismissal here.
¶ 90. Despite the majority's hypothesis that Below might recover if he attempts again to file a contract claim, there remain fraud cases where tort is the only remedy. The majority bars those homeowners from recovering for latent defects hidden by sellers' deceit.
¶ 91. The court of appeals in Aslani recognized that the outcome was "harsh" but felt that its hands *749were tied. The court suggested that the proper fix was for the legislature to change the law to allow contract claims to accrue upon discovery of breach. Because the economic loss doctrine is judge-made law, however, no legislative fix may be necessary. This court, here and now, could curb such a "harsh" result that leaves victims remediless by refusing to apply the economic loss doctrine in cases involving the purchases of homes by defrauded homebuyers.
IV
¶ 92. The problems with the majority's approach are highlighted in the amicus brief filed by the Realtors. They argue that the economic loss doctrine should not apply to the purchase of a home, and that the doctrine is particularly unwarranted in cases involving fraudulent inducement. The Realtors express concern about the impact of this decision on the real estate market and Wisconsin consumers:
Providing homebuyers with accurate and complete information and promoting an environment of trust and honesty are essential for fair and informed real estate contracts. The residential real estate transaction is fundamental to the real estate industry and the welfare of Wisconsin consumers seeking homeowner-ship.
¶ 93. They're right.
¶ 94. The application of the economic loss doctrine barring recovery to homebuyers who are victims of fraud is bad for both the real estate market and the welfare of consumers. It is neither compelled by the law nor supported by good public policy. Accordingly, I respectfully dissent.
*750¶ 95. I am authorized to state that Chief Justice SHIRLEY S. ABRAHAMSON and Justice LOUIS B. BUTLER, JR. join this dissent.

 The Uniform Commercial Code, Wis. Stat. chs. 401-411 (2005-06) sets forth the rights and remedies that govern transactions between commercial parties of relatively equal bargaining power. Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc., 148 Wis. 2d 910, 916, 437 N.W.2d 213 (1989). It provides a "comprehensive system for compensating consumers for economic loss arising from the purchase of defective products." State Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 225 Wis. 2d 305, 342, 592 N.W.2d 201 (1999).

 The majority notes that neither the majority nor the dissent in Wickenhauser distinguished between "residential" and "noncommercial" real estate. Majority op., ¶ 36. But why would they have? Wickenhauser did not involve residential real estate! Why does the failure to distinguish residential and noncommercial real estate in one case prevent this court from distinguishing residential real estate — a home to live in — and farmland?

 Ralph C. Anzivino, The Fraud in the Inducement Exception *744to the Economic Loss Doctrine, 90 Marq. L. Rev. 921, 932-33 (2007).

 The defendants in Swope represented to a home buyer that the home was free of defects. However, the buyer discov*745ered defects after moving in, and brought a lawsuit alleging that the failure to disclose defects constituted fraudulent inducement. Applying HTP, the court determined that the economic loss doctrine did not bar the claim. Swope v. Dimarco, 886 So. 2d 270, 272 (Fla. Dist. Ct. App. 2004); HTP, Ltd. v. Lineas Aereas Costarricenses, 685 So. 2d 1238 (Fla. 1996).

 The Florida supreme court is an example of a state supreme court which once embarked upon an expansion of the economic loss doctrine beyond the doctrine's original purpose, but now is signaling the need for a retreat. In lamenting the expansion it stated "[u]nfortunately... 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). See also Indem. Ins. Co. v. Am. Aviation, Inc., 891 So. 2d 532, 542 (Fla. 2004) (recognizing *746that economic loss doctrine in Florida does not bar recovery for fraudulent inducement and negligent misrepresentation claims).

 The Aslani case is. discussed not for any precedential purposes but as a recent example where no remedy may exist for defrauded homebuyers. See Wis. Stat. (Rule) § 809.23(3). As noted above, it is currently pending before this court on a petition for review.