2008 WI 77
|
Supreme Court of |
|
|
|
|
Case No.: |
2005AP2855 |
|
Complete Title: |
|
|
|
Plaintiff-Appellant-Petitioner, v. Dion R. Norton and Dana Norton, Defendants-Respondents. |
|
|
|
|
|
|
|
|
REVIEW OF A DECISION OF THE COURT OF APPEALS 2007 WI App 9 Reported at: 297 (Ct. App. 2007-Published) |
|
|
|
|
Opinion Filed: |
July 1, 2008 |
|
Submitted on Briefs: |
||
Oral Argument: |
February 26, 2008
|
|
|
|
|
Source of Appeal: |
|
|
|
Court: |
Circuit |
|
County: |
|
|
Judge: |
Michael D. Guolee
|
|
|
|
Justices: |
|
|
|
Concurred: |
|
|
Dissented: |
BRADLEY, J., dissents (opinion filed). ABRAHAMSON, C.J., and |
|
Not Participating: |
|
|
|
|
Attorneys: |
|
For the plaintiff-appellant-petitioner there were briefs
filed by Daniel W. Stevens, Rudolph J.
Kuss, and the Law Office of Daniel W.
Stevens,
For the defendants-respondents there were briefs filed by Vicki Zick and Zick & Weber Law Offices, LLP, Johnson Creek, and oral argument by Vicki Zick.
Amicus curiae briefs were filed by Debra P. Conrad,
An amicus curiae brief was filed by Stephen E. Meili,
An amicus curiae brief was filed by Charles David Schmidt and
2008 WI 77
notice
This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports.
No. 2005AP2855
REVIEW of a decision of the Court of Appeals. Affirmed and remanded.
¶1 N. PATRICK CROOKS, J. This is a review of a
published decision of the Court of Appeals,[1]
which reversed in part, affirmed in part, and remanded the decision of the
Circuit Court for
¶2 Petitioner, Shannon Below (Below), seeks review of the court of appeals' decision. The circuit court had granted the motion to dismiss of the respondents, Dion R. Norton and Dana Norton (the Nortons).
¶3 There are two principal issues upon review. The first issue is whether the economic loss doctrine (ELD) bars common-law claims for intentional misrepresentation[2] that occur in the context of residential real estate transactions. The second issue is whether the ELD bars common-law claims for intentional misrepresentation that occur in the context of noncommercial real estate transactions.
¶4 We affirm the decision of the court of appeals. We hold that the ELD bars common-law claims for intentional misrepresentation in real estate transactions, whether such claims occur in the context of residential[3] or noncommercial sales, such as the one in the case before us. We do not draw a distinction between the terms "residential" and "noncommercial" here, because either term fits the real estate transaction at issue.
¶5 Below is not left without a remedy. A purchaser of a home, as well as real estate brokers and agents, can all be assured that applying the ELD still leaves statutory and contractual remedies available where misrepresentation has occurred. We note that Below's claim under Wis. Stat. § 100.18 (2003-04)[4] for false advertising was remanded by the court of appeals to the circuit court for a trial on its merits. The court of appeals' decision on that issue was not presented for our review. Section 100.18 provides a remedy for more than merely "false advertising," in that it covers fraudulent representations made to even one prospective purchaser. See K&S Tool & Die Corp. v. Perfection Mach. Sales, Inc., 2007 WI 70, ¶¶21, 23, 301 Wis. 2d 109, 732 N.W.2d 792.
¶6 In our K&S Tool & Die Corporation opinion, we
stated that the legislature intended Wis. Stat. § 100.18 "'to protect the residents of
¶7 We note that the issue of whether the ELD bars claims under Wis.
Stat. § 895.446[5]
(formerly Wis. Stat. § 895.80)
for a violation of Wis. Stat. § 943.20(1)(d)
also was presented for our review.
However, we decline to address that issue in this opinion, and we remand
that issue to the circuit court. We do
so because the record of the proceedings before the circuit court is unclear as
to why this claim was dismissed. Furthermore,
this issue was not directly addressed and discussed by the court of
appeals. We cannot determine from the
record before us on review whether the circuit court dismissed that claim: (1)
because it was insufficient and fatally flawed, so that a claim upon which
relief could be granted was not stated; or (2) because the circuit court believed
that claim was barred by the ELD. As a
result, we remand that issue to the circuit court for further proceedings. Upon remand, the circuit court should clearly
state that court's holding on that statutory claim. The circuit court should review this court's
recent decision in Stuart v. Weisflog's Showroom Gallery, Inc., 2008 WI
22, ¶33, ___
I
¶8 This case involves a real estate transaction in which Below
purchased a house on the south side of
¶9 The Nortons completed the statutorily required property condition report when they put their house on the market. In their property condition report, the Nortons represented that they were not aware of any defects with the house's plumbing system, except for a problem with their bathtub's drain handle.
¶10 Below
reached an agreement with the Nortons to purchase the house, and the
transaction closed. Below and the
Nortons did not have any personal contact during this process. After Below moved into the house, she learned
that the sewer line that ran between the house and the street was broken.
¶11 On
May 4, 2004, Below filed the present action against the Nortons in the Circuit
Court for
¶12 Below
requested, and was granted, leave to file an amended complaint, which contained
a breach of contract claim. However,
both the circuit court and the court of appeals did not consider the amended
complaint because they determined that Below did not properly file and serve
her amended complaint. Below did not
appeal the court of appeals' determination on that issue to this court. We note that the circuit court, on remand,
has the authority to allow Below to attempt again to file and serve an amended
complaint that contains her breach of contract claim. See
¶13 On
June 11, 2004, the Nortons filed both an answer to Below's complaint and a
motion to dismiss her complaint on the grounds that the complaint failed to
state a claim upon which relief could be granted and that some of Below's
claims were barred by the ELD. In their
accompanying memorandum in support of their motion to dismiss, the Nortons
argued that Below's common-law intentional, negligent, and strict
responsibility misrepresentation claims were barred by the ELD.[7] On September 13, 2004, the circuit court
adjourned its hearing on the Nortons' motion to dismiss Below's complaint until
this court rendered its decision in Kaloti Enterprises, Inc. v. Kellogg Sales
Co., 2005 WI 111, 283 Wis. 2d 555, 699 N.W.2d 205.
¶14 The
circuit court held hearings on the Nortons' motion to dismiss Below's complaint
on July 26, 2004, September 13, 2004, and October 17, 2005. On November 4, 2005, the circuit court
formally granted the Nortons' motion to dismiss the complaint in its entirety. The circuit court held that the ELD barred
Below's common-law intentional, negligent, and strict responsibility
misrepresentation claims. The circuit
court also dismissed Below's remaining claims, such as the Wis. Stat. §§ 100.18
and 895.446 claims, in one paragraph in the transcript as not being
"applicable." The circuit
court also stated, "I am going to dismiss these claims based on this
transaction and this Complaint[,] and . . . these are not claims that [Below]
can claim under these facts . . . ."
¶15 Below
appealed the circuit court's decision to the court of appeals. Below argued that the circuit court had erred
when it held that all of her tort claims were barred by the ELD. Holding that the ELD did not bar Below's Wis.
Stat. § 100.18 claim, the court of appeals reversed the circuit court's
dismissal of Below's false advertising misrepresentation claim under that
statute. Accordingly, the court of
appeals remanded that claim to the circuit court for trial.
¶16 In
explaining its holding on the Wis. Stat. § 100.18 claim, the court of
appeals stated:
Below claims
that the trial court erred when it dismissed her false advertising Wis. Stat. § 100.18
misrepresentation claim. We agree. In Kailin v. Armstrong, 2002 WI App
70, ¶43, 252
Below, 297
Here, Below's complaint sufficiently alleged a cause of action under Wis. Stat. § 100.18 to survive a motion to dismiss. Below alleged that the Nortons made an untrue representation which caused Below to suffer a pecuniary loss. If Below can prove her allegations at trial, she may recover on the false advertising claim. Accordingly, this cause of action should not have been dismissed. We reverse that portion of the trial court's order and remand for further proceedings.
¶17 However, the court of appeals affirmed the circuit court's dismissal of all of the other claims in Below's complaint. The court of appeals held that the ELD barred the remainder of Below's tort claims, but it did not directly address and discuss the statutory claim under Wis. Stat. §§ 895.446 and 943.20(1)(d). Below filed a petition for review of the court of appeals' decision, which we granted.
II
¶18 This review results from the court of appeals' action in its
examination of the circuit court's grant of the Nortons' motion to dismiss
Below's complaint in its entirety. A
motion to dismiss for failure to state a claim requires a determination of
whether a complaint is legally sufficient to put forth a claim for which relief
can be granted. Watts v. Watts,
137
¶19 Whether the ELD applies to bar a claim under a given set of facts
presents a question of law that is subject to our de novo review. Linden v. Cascade Stone Co., 2005 WI
113, ¶5, 283
III
¶20 The principal issues upon review are whether the ELD bars common-law claims for intentional misrepresentation that occur in the context of residential, or noncommercial, real estate transactions.
¶21 On review, Below argues that this court should determine that the
ELD does not bar common-law intentional misrepresentation claims arising from
residential, or noncommercial, real estate transactions, because she claims
that this court has not applied our Kaloti decision outside of a
commercial context. Alternatively, Below
argues that the Kaloti fraud in the inducement exception to the ELD
should apply to her case. Kaloti
Enters., Inc., 283
¶22 On review, the Nortons argue that the ELD should bar common-law intentional misrepresentation claims in residential, or noncommercial, real estate transactions. They contend that the court of appeals correctly applied existing case law concerning the ELD to the particular facts of the present case. The Nortons also assert that the ELD's rationale, that buyers are adequately protected by the contractual remedies that they negotiate, applies with equal force to residential, or noncommercial, real estate transactions. As a result, the Nortons argue that buyers of such real estate should consider the risk of the seller committing fraud, and the Nortons further suggest that homebuyers are in the best position to insure against such a risk.
¶23 For the reasons discussed in detail below, we hold that the ELD does bar common-law claims for intentional misrepresentation that occur in the context of residential, or noncommercial, real estate transactions.
¶24 The ELD "is a judicially created doctrine that seeks to
preserve the distinction between contract and tort." Ins. Co. of N. Am. v. Cease Elec., Inc.,
2004 WI 139, ¶15, 276
¶25 In the present case, Below's alleged damage, the house's inadequate value, is an economic loss because the house is allegedly inferior. The house is allegedly inferior because its broken sewer line prevents the house from fulfilling one of its intended uses, and also prevents the house from fulfilling one of the general purposes for which it was sold, basic sanitary needs. The contracting party, here Below, could normally[8] recover her economic loss, which resulted when the house did not live up to her expectations, through contractual remedies because of her home sales contract.
¶26 The
case law on the ELD leads us to the result that we reach in the present case,
that the ELD bars common-law claims for intentional misrepresentation that arise
in the context of residential real estate transactions. This court has applied the ELD to bar both
negligence and strict liability claims that arise in the context of consumer
goods transactions. See State
Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 225
¶27 In
Kaloti, this court decided that the ELD bars misrepresentation claims
that arise in a contractual setting, unless the misrepresentation falls under a
narrow fraud in the inducement exception to the ELD. Kaloti Enters., Inc., 283
¶28 Of particular relevance to our decision in the present case are
this court's previous decisions in Linden, 283
¶29 In
¶30 Most recently, in our decision in Wickenhauser, we applied
the fraud in the inducement exception to the ELD in the context of a
noncommercial real estate transaction. Wickenhauser,
302
¶31 The Wickenhausers bought 300 additional acres in 1997 for their
dairy farm from Thomas Burow, and they obtained their financing from Jack
Lehtinen (Lehtinen).
¶32 Lehtinen filed a lawsuit (the first action) against the
Wickenhausers seeking enforcement of his option, which he had recorded, to buy
the 300 acres.
¶33 In the first action, the circuit court found for the Wickenhausers
and held that they "did not agree to grant Lehtinen an ownership interest
in the 300-acre parcel."
¶34 This court held that the Wickenhausers had stated a claim for
intentional misrepresentation against Lehtinen that was "'extraneous to,
rather than interwoven with, the contract.'"
¶35 Significantly, in Wickenhauser, Chief Justice Abrahamson's
concurrence described the majority opinion as extending the ELD by holding, for
the first time, "that the economic loss doctrine is applicable to the
present noncommercial real estate transaction involving at least one unsophisticated
party negotiating without counsel and without a fully written, bargained-for
contract."
¶36 It appears that the majority, as well as the concurrence, in Wickenhauser drew no distinction between the terms "residential" and "noncommercial." In the case before us, it seems unnecessary to draw such a distinction because either term fits the real estate transaction at issue here. Based on the case law cited previously, and given the discussions and the analyses in the majority opinion and the concurrence in Wickenhauser, we are satisfied that the ELD bars common-law intentional misrepresentation claims arising out of residential, or noncommercial, real estate transactions, such as the one in the case before us.
¶37 Additionally, the facts presented in the present case support our conclusion that the ELD bars common-law intentional misrepresentation claims arising out of residential, or noncommercial, real estate transactions. The record before us reflects that Below received a completed property condition report in accordance with the requirements of Wis. Stat. § 709.02. Under that statute, and also under Wis. Stat. § 709.03, the required property condition report that Below received contained a notice that she may want to obtain either professional advice or an inspection of the property. Under those statutes, the required property condition report also contained a disclaimer that the buyer, here Below, acknowledged that a professional inspector's technical knowledge may be required to detect certain defects or code violations. There is nothing in the record before us that indicates whether Below heeded this advice and hired a professional inspector before closing on the home. Regardless, if the Nortons knew about the defect with the sewer line and failed to disclose the defect, as required by these statutes, then the Nortons may very well have breached the contract's terms. As a result, in addition to her pending Wis. Stat. § 100.18 claim, Below might normally have been in a position to pursue a breach of contract claim against the Nortons for which contractual remedies would have been available.[11]
¶38 Under the protections afforded to real estate purchasers by Wis. Stat. § 709.02, purchasers are protected by contract and, thus, by contractual remedies. Accordingly, the ELD should bar common-law claims for intentional misrepresentation that arise in the context of residential, or noncommercial, real estate transactions when, as here, the damages sought are purely economic. Clearly, purchasers have adequate contractual and statutory remedies, if needed.
¶39 Furthermore, we do not agree with Below that the Kaloti
fraud in the inducement exception to the ELD applies to the facts of the
present case. As discussed, the Kaloti
fraud in the inducement exception to the ELD only applies when the
misrepresentation in question induced the plaintiff to enter into the contract,
and that misrepresentation must be "'extraneous to, rather than interwoven
with, the contract.'" Kaloti
Enters., Inc., 283
¶40 In summary, for the reasons stated herein, we are satisfied that the ELD bars common-law claims for intentional misrepresentation in real estate transactions that occur in the context of residential, or noncommercial, sales.
IV
¶41 We affirm the decision of the court of appeals. We hold that the ELD bars common-law claims for intentional misrepresentation in real estate transactions, whether such claims occur in the context of residential, or noncommercial, sales, such as the one in the case before us. We do not draw a distinction between the terms "residential" and "noncommercial" here, because either term fits the real estate transaction at issue.
¶42 Below is not left without a remedy.
A purchaser of a home, as well as real estate brokers and agents, can
all be assured that applying the ELD still leaves statutory and contractual
remedies available where misrepresentation has occurred. We
note that Below's claim under Wis. Stat. § 100.18 for false advertising
was remanded by the court of appeals to the circuit court for a trial on its
merits. The court of appeals' decision
on that issue was not presented for our review.
Section 100.18
provides a remedy for more than merely "false advertising," in that
it covers fraudulent representations made to even one prospective
purchaser. See K&S Tool
& Die Corp., 301
¶43 In our K&S Tool & Die Corporation opinion, we stated
that the legislature intended Wis. Stat. § 100.18 "'to protect the residents of
¶44 The issue of whether the ELD bars claims under Wis. Stat. § 895.446 for a
violation of Wis. Stat. § 943.20(1)(d)
also was presented for our review.
However, we decline to address that issue in this opinion, and we remand
that issue to the circuit court. We do
so because the record of the proceedings before the circuit court is unclear as
to why this claim was dismissed.
Furthermore, the issue was not directly addressed and discussed by the
court of appeals. We cannot determine
from the record before us on review whether the circuit court dismissed that claim:
(1) because it was insufficient and fatally flawed, so that a claim upon which
relief could be granted was not stated; or (2) because the circuit court believed
that claim was barred by the ELD. As a
result, we remand that issue to the circuit court for further proceedings. Upon remand, the circuit court should clearly
state that court's holding on that statutory claim. The circuit court should review this court's
recent decision in Stuart, ___
By the Court.——The decision of the court of appeals is affirmed, and this matter is remanded to the circuit court for actions consistent with this opinion.
¶45 ANN WALSH BRADLEY, J. (dissenting). This is a case that can affect every single
person who purchases a home in
¶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
¶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,
¶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
¶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.
I
¶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 fraud in the inducement
exception to the economic loss doctrine adopted by this court in Kaloti
Enters., Inc. v. Kellogg Sales
¶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
¶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
¶57 This court declined to extend the doctrine to cases involving
contracts for services in Ins. Co. of N. Am. 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.)[12]
to manufacturers and purchasers of products.
¶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 misrepresentation in the context of a transaction
for commercial real estate——a
gravel pit. 274
¶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
¶63 From the majority's discussion here, one would think that this
court considered the contract in
¶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:
¶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
¶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.
¶67 More importantly, the Wickenhauser majority was adamant that
it did not extend the economic loss doctrine into contexts beyond those already
established in this state by
¶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
¶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.
II
¶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
¶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
¶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.[14]
¶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
¶76 The only other state supreme court nominally adopting the narrow
exception to the economic loss doctrine is
¶77 Additionally,
¶78 Barring the tort claims of defrauded homebuyers is bad public
policy. It is anathema to the public's interest in truth telling in matters of
commerce. As the
[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 plaintiff's 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).[16]
¶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
¶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 (
¶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.
III
¶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. (
¶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.
¶87 Section 100.18 claims are subject to a three-year statute of
repose, which accrues at the time of the violation.
¶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.
¶89 The majority asserts that Below may "attempt again to file and serve an amended complaint" containing breach of contract claims. Majority op., ¶12. I 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 were 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
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
¶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.
¶95 I am authorized to state that Chief Justice SHIRLEY S. ABRAHAMSON and Justice LOUIS B. BUTLER, JR. join this dissent.
[1] Below v. Norton,
2007 WI App 9, 297
[2] Below's common-law negligent
misrepresentation and strict responsibility misrepresentation claims are not addressed
herein, because Below conceded in her petition for review that the ELD barred
those claims. See, e.g., State
Farm Mut. Auto. Ins. Co. v. Ford Motor Co., 225
[3] The court of appeals
characterized the transaction here as a "residential real estate
transaction." Below, 297
[4] All further references to the Wisconsin Statutes are to the 2003-04 version unless otherwise noted.
[5]
[6] Below also alleged a sixth claim
for rescission and restitution. As the
circuit court and the court of appeals both correctly noted, neither
constitutes a claim. Rather, both are
remedies. Accordingly, we will not
specifically address rescission or restitution.
[7] As previously noted, Below's common-law negligent misrepresentation claim and her common-law strict responsibility misrepresentation claim are not addressed herein, because Below conceded in her petition for review that the ELD barred those claims.
[8] We note, again, that Below requested, and was granted, leave to file an amended complaint, which contained a breach of contract claim. However, both the circuit court and the court of appeals did not consider the amended complaint because Below did not properly file and serve it. Below did not petition for review of the court of appeals' determination on that issue. Below may, of course, pursue her Wis. Stat. § 100.18 false advertising misrepresentation claim, because that claim was remanded to the circuit court for trial by the court of appeals, and that decision is not before us.
[9] Accordingly, we disagree with
the dissent's statement that "[i]t is difficult to discern when, if
ever, fraudulent inducement to a contract is 'extraneous to, rather than
interwoven with, the contract.'"
Dissent, ¶73. Contrary to the dissent's assertion, instead
of "explaining the difficulty of how to apply the narrow exception"
to the ELD, the pages of the law review article that the dissent cites simply
recount this court's caselaw on that issue.
[10] Based on the record before us, including the residential offer to purchase and the real estate condition report, we are satisfied that the contract here included the purchase of both the house and the associated land. Accordingly, any undisclosed defects with the house were interwoven with, and not extraneous to, the contract to purchase here.
[11] We note again that Below requested, and was granted, leave to file an amended complaint, which contained a breach of contract claim. However, Below did not properly file and serve her amended complaint.
[12] 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
[13] 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?
[14] Ralph C. Anzivino, The Fraud in the Inducement Exception to the Economic Loss Doctrine, 90 Marq. L. Rev. 921, 932-33 (2007).
[15] The defendants in Swope
represented to a home buyer that the home was free of defects. However, the
buyer discovered 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 (
[16] 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 (
[17] The Aslani case
is discussed not for any precedential purposes but as a recent example where no
remedy may exist for defrauded homebuyers. See