Wisconsin's economic loss doctrine evolves.

• Author: Ziemer, David

Byline: David Ziemer

Few legal doctrines are as divisive in Wisconsin as the economic loss doctrine (ELD), which, when it applies, bars a plaintiff from seeking tort remedies for purely commercial damages arising from breach of a contract.

Its defenders maintain it is necessary to prevent contract law from drown[ing] in a sea of tort. East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858, 866 (1986).

Detractors in Wisconsin say it is tort law that is endangered: 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. Grams v. Milk Prods., Inc., 2005 WI 112, par. 57 (Abrahamson, C.J., dissenting).

Detractors and defenders alike, however, struggle with how the doctrine applies to tort claims that allege fraud in the inducement to the contract.

In an address to the Dane County Bar Association on Nov. 11, Attorney Timothy M. Barber, of Axley Brynelson LLP in Madison, shed some light on its application.

Barber emphasized that the key inquiry is whether the alleged misrepresentation concerns the quality of the goods sold, or some other aspect of the contract.

Barber began with the unusual history of the ELD's application to fraud claims. In the first case, Digicorp., Inc. v. Ameritech Corp. 2003 WI 54, only five justices participated in the case, and the case produced three separate opinions, none of which resulted in a clear rule of law.

The next year, in Tietsworth v. Harley-Davidson, Inc. 2004 WI 32, the court assumed, without deciding, that the ELD does allow some exception for fraud in the inducement.

Finally, the year after that, in Kaloti Enters., Inc. v. Kellogg Sales Co., 2005 WI 111, the court finally held unequivocally that there is an exception, but it is a narrow one.

Adopting the reasoning of a Michigan Court of Appeals opinion, Huron Tool and Engineering Co. v. Precision Consulting Services, Inc., 532 N.W.2d 541 (Mich.App.Ct. 1995), the court held A fraud in the inducement claim is not barred by the economic loss doctrine where the fraud is extraneous to, rather than interwoven with, the contract.

Courts have struggled with the meaning of that language ever since.

To determine whether the Huron Tool exception applies, Barber advised not to bother trying to give meaning to the terms extraneous or interwoven.

Instead, attorneys should focus on the alternative language the...