Wisconsin Court of Appeals rules tort claims not barred by economic loss doctrine.

Byline: David Ziemer

Summary judgment was improperly granted pursuant to the economic loss doctrine on a purchaser's tort claims against the seller of a contaminated product, the Wisconsin Court of Appeals held on Nov. 16. Foremost Farms USA produces dairy products, some of which use an ingredient known as "recon" -- reconstituted milk. Foremost had a problem with excessive foaming in its production of recon, and in May 2000, started purchasing and using a defoamer manufactured by Performance Process Inc., to reduce the foam in the processing of recon. One of the batches of defoamer it bought was contaminated with excessive amounts of phenol, which made the dairy products unfit for consumption, and required recall of the products made with that batch. Foremost sued Performance, seeking monetary damages in the amount of $587,118.30, alleging negligence and strict liability for distributing a defective product. Performance moved for summary judgment dismissing the tort claims, arguing they were barred by the economic loss doctrine. Monroe County Circuit Court Judge Michael J. McAlpine granted the motion, and Foremost appealed. The court of appeals reversed, in a decision by Judge Paul G. Lundsten. Under the economic loss doctrine, tort claims seeking economic losses resulting from a breach of contract are barred. "Economic losses" are "damages resulting from inadequate value because the product is inferior and does not work for the general purposes for which it was manufactured and sold." However, tort claims based on damage to "other property" are not barred by the doctrine. Wausau Tile, Inc., v. County Concrete Corp., 226 Wis.2d 235, 247, 593 N.W.2d 445 (1999). The court stated that the relevant question in this case was, "whether Foremost's recon and end dairy products are 'other property' with respemct to Performance Corp.'s defoamer. If they are 'other property,' as that term is used in economic loss doctrine parlance, Foremost's tort claims based on damage allegedly caused by the defoamer were improperly dismissed." The "other property" test is determined by two sub-inquiries, the "integrated system" test, and the "disappointed expectations" test. Integrated System Test The court first held that the evidence was insufficient to conclude that the dairy products were not "other property" under the "integrated system" test. Under the test, if a product has no function apart from its value as a part of a larger system, the larger system and...