Court Opinion

ID: 9658729
Source: CourtListenerOpinion
Date Created: 2023-08-23 21:10:09.798869+00
Date Added: 2024-06-11T18:13:58.326313
License: Public Domain

ANN WALSH BRADLEY, J.
¶ 84. (dissenting). Typically, when you narrow the viability of a cause of action, you chip away at the edges while being careful to preserve its core essence. However, by endorsing the Huron limitation, the lead opinion eviscerates the core of the tort of fraud in the inducement while purportedly leaving the edges of this cause of action intact. Because the Huron limitation essentially eliminates the viability of the tort of fraud in the inducement and undermines the purpose of the economic loss doctrine, I respectfully dissent.
¶ 85. While I agree with the lead opinion that there is a fraud in the inducement exception to the economic loss rule, I disagree with the lead opinion's *69endorsement of the limitation on that exception set forth in Huron Tool and Engineering Co. v. Precision Consulting Services, Inc., 532 N.W.2d 541, 543 (Mich. App. 1995). Like the court of appeals, I would uphold the rule set forth in Douglas-Hanson Co. v. BF Goodrich Co., 229 Wis. 2d 132, 138-139, 598 N.W.2d 262 (Ct. App. 1999), that "the economic loss doctrine does not preclude a plaintiffs claim for intentional misrepresentation when the misrepresentation fraudulently induces a plaintiff to enter into a contract."
¶ 86. The lead opinion rejects the rule established in Douglas-Hanson and concludes that the economic loss doctrine acts as a bar to a fraud in the inducement tort claim only in those circumstances where the fraud is "interwoven" with the contract, and not extraneous to it. Lead op., ¶ 21. However, the lead opinion fails to acknowledge that the Huron limitation fatally undermines the viability of the tort of fraud in the inducement. The court in Budgetel Inns, Inc. v. Micros Systems, Inc., 8 F. Supp. 2d 1137, 1146 (E.D. Wis. 1998), acknowledged this fatal flaw when it explained that the Huron limitation essentially eliminates the fraud in the inducement exception:
In practice, the Huron limitation renders the fraud in the inducement exception a nullity. The Huron limitation to the fraud in the inducement exception is so broad that it swallows the exception whole.
In all cases cited by the parties and researched by the court, use of the Huron limitation eliminated the claims of fraud in the inducement. For instance, after discussing the fraud in the inducement exception with the Huron limitation, the Huron court itself found that the plaintiffs fraud claim was not viable apart from its contract claims ...."
*70¶ 87. Black's Law Dictionary defines "fraud in the inducement" as "fraud occurring when a misrepresentation leads another to enter into a transaction with a false impression of the risks, duties, or obligations involved." Black's Law Dictionary 671 (7th ed. 1999). As this definition reflects, the core of a fraud in the inducement action addresses misrepresentations regarding the risks, duties or obligations to be set forth in, and therefore "interwoven" with, a contract. It is hard to see how any of this core can survive under the lead opinion's formulation of the rule which bars a fraud in the inducement action where the fraud "is interwoven with the contract in that it involved matters for which risks and responsibilities were addressed." Lead op., ¶ 3.
¶ 88. The use of the Huron limitation creates an analytical disconnect in cases that involve a tort claim of fraud in the inducement. The disconnect is created because the type of case that the tort of fraud in the inducement is designed to address is the same type of case that the Huron limitation prevents from being brought. The court in Budgetel highlighted this problem:
The tort, after all, is inducing someone to enter into a contract, so to say it does not apply where the tort involves the contract or its subject matter analytically makes no sense.
Budgetel Inns, 8 F. Supp. 2d at 1147.
¶ 89. Not only does the Huron limitation render a nullity the tort of fraud in the inducement, but it also undermines the very doctrine it purports to support. The lead opinion endorses the Huron limitation in furtherance of the economic loss doctrine. However, the purposes for the economic loss doctrine are undermined *71by the Huron limitation. As the lead opinion notes, the economic loss doctrine was created to (1) maintain the fundamental distinction between tort law and contract law; (2) protect commercial parties' freedom to allocate economic risk by contract; and (3) encourage the party best situated to assess the risk of economic loss, the commercial purchaser, to assume, allocate, or insure against risk.
¶ 90. The first purpose of maintaining the distinction between tort law and contract law is compromised because the Huron limitation essentially eliminates the fraud in the inducement exception. Eliminating tort law in favor of contract law does not maintain a distinction. It instead does away with the distinction. In addition, the Douglas-Hanson rule, which does not have the Huron limitation, constitutes "a better, bright-line rule" in that "it does not require courts to ask the murky 'interwoven' question." Budgetel Inns, 8 F. Supp.2d at 1149.
¶ 91. With respect to the two other purposes for the economic loss doctrine, it is difficult for a party engaged in contract negotiations to freely assess, allocate and insure against risk when the other party is blatantly lying regarding material terms of the contract. See Douglas-Hanson Co., 229 Wis. 2d at 145-47. The existence of tort remedies provides a deterrent effect against such conduct. Accordingly, it is hard to see how a party's ability to freely assess, allocate and insure against risk is advanced by removing the deterrent effect created by the tort remedies.
¶ 92. Let's be clear, we are talking here about fraudulent misrepresentation during the negotiations of a contract. The parties should be able to operate under a legal backdrop that promotes honest negotiation. While rescission and restitution may be adequate *72remedies in many fraudulent inducement cases, there are certainly cases in which the fraud is so blatant and extensive as to warrant tort damages. Today, the lead opinion takes away the possibility of tort damages in those cases.
¶ 93. I also disagree with the lead opinion's effort to expand the rule set forth in Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 573 N.W.2d 842 (1998), without sufficient analysis. Daanen & Janssen held that privity is not required for the economic loss doctrine to bar a remote commercial purchaser from recovering economic losses from a manufacturer under theories of strict liability and negligence. Id., 216 Wis. 2d 395, ¶ 1 and ¶ 38. The lead opinion prefers a significant expansion of this rule to cover situations such as this case in which the plaintiff is not a remote commercial purchaser, the defendant is not a manufacturer, and the tort claim is not strict liability or negligence.
¶ 94. Rather than explain its analysis, the lead opinion simply states that the language in Daanen & Janssen is clear in establishing a rule that the "economic loss doctrine precludes recovery in tort for solely economic losses, regardless of whether privity of contract exists between the parties." Lead op., ¶ 4, ¶ 22 and ¶ 69. However, the lead opinion's formulation is clearly an expansion of the holding of Daanen & Jans-sen and the lead opinion should more fully explain its reasoning for making such an expansion.
¶ 95. Since Bacher had no contract with Amer-itech, presumably the lead opinion's application of Daanen & Janssen leaves Bacher without a tort remedy or a contract remedy. It acknowledges that Bacher raised the concern that if the economic loss doctrine prevents its intentional tort claim, it will be left without *73a remedy for Ameritech's fraud. Lead op., ¶ 31. However, the opinion does not explain why Bacher being left without a remedy is the correct result. Perhaps it did not address this question because it cannot fairly answer it.
¶ 96. Finally, I take issue with the lead opinion's third conclusion in this case: "We also hold that recovery of the benefit of the bargain is not permissible where the fraud in the inducement exception applies and tort remedies are sought." Lead op., ¶ 4; see also ¶ 23, ¶ 67, ¶ 70. Because the lead opinion determined in ¶ 62, ¶ 65 and ¶ 68 that Digieorp's and Bacher's fraud in the inducement claims are not permitted to proceed, I am at a loss as to why the opinion makes a conclusion that is only relevant if one of those claims was permitted to proceed.
¶ 97. In sum, I disagree with the lead opinion's endorsement of the Huron limitation to the fraud in the inducement exception to the economic loss doctrine. Further, I take issue with its unexplained effort to expand the Daanen & Janssen rule regarding contractual privity and its reaching out and taking a position on an issue regarding the benefit of the bargain that it need not address. Accordingly, I respectfully dissent.
¶ 98. I am authorized to state that WILLIAM A. BABLITCH, J., joins this dissent.