Daanen & Janssen, Inc. v. Cedarapids, Inc.

Decision Date26 February 1998
Docket NumberNo. 97-1320-CQ,97-1320-CQ
Parties, 35 UCC Rep.Serv.2d 856, Prod.Liab.Rep. (CCH) P 15,460 DAANEN & JANSSEN, INCORPORATED, a Wisconsin Corporation, Plaintiff-Appellant, v. CEDARAPIDS, INCORPORATED, an Iowa Corporation, Defendant-Appellee.
CourtWisconsin Supreme Court

For the plaintiff-appellant there were briefs by George Burnett and Liebmann, Conway, Olejniczak & Jerry, S.C., Green Bay and oral argument by George Burnett.

For the defendant-appellee there were briefs by Ronald R. Ragatz and DeWitt Ross & Stevens, S.C., Madison and oral argument by Ronald R. Ragatz.

¶1 DONALD W. STEINMETZ, Justice

This case is before the court on a certified question from the United States Court of Appeals for the Seventh Circuit, pursuant to Wis. Stat. § 821.01 and Circuit Rule 52. The question certified to this court is: In the absence of privity, 1 does the economic loss doctrine bar a remote commercial purchaser from recovering economic losses from a manufacturer under theories of strict liability and negligence? After reviewing the policies on which this and other courts have relied when employing the economic loss doctrine, and applying those underlying policies to this case, we answer the certified question in the affirmative.

¶2 The following facts were taken from the Joint Proposed Statement of Relevant Facts issued, pursuant to Wis. Stat. § 821.03(2), by the United States Court of Appeals for the Seventh Circuit. The plaintiff, Daanen & Janssen, Inc. (hereinafter "Daanen"), a commercial business, is a Wisconsin corporation that operates several quarries in Brown County, Wisconsin. As part of its operations, Daanen crushes and sells the rock it removes from the quarries. To crush the rock, Daanen utilizes machines known as primary, secondary, and tertiary crushers that include a component called a "pitman."

¶3 The defendant, Cedarapids, Inc. (hereinafter "Cedarapids"), is an Iowa corporation that manufactures and sells new crushing equipment and spare parts to distributors that then resell the products to quarry owners. One of Cedarapids' distributors is Aring Equipment Co. (hereinafter "Aring").

¶4 In January 1991, Daanen's pitman failed, necessitating replacement. Daanen purchased from Aring a replacement pitman manufactured by Cedarapids. In its distributorship agreement with Aring, Cedarapids provided Aring with a standard express warranty which applied to all of Cedarapids' products, including the pitman eventually sold to Daanen; the warranty states that it applies to Aring's customers. At the time it purchased the pitman, Daanen apparently was unaware of Cedarapids' warranty, and Aring did not pass this warranty to Daanen. In addition, Daanen did not request or receive from Aring a warranty on the replacement pitman; Daanen's invoice from Aring stated that Aring disclaimed all warranty and liability.

¶5 Soon after Daanen installed the replacement part in two of its crushers, the machines began to break down. From the 1991 purchase until 1993 there were five or six serious breakdowns of the crushing equipment. These breakdowns were eventually attributed to manufacture and design problems in the Cedarapids' pitman.

¶6 After examining the defective pitmans, Cedarapids ordered replacement parts for Daanen. Daanen declined to accept the replacements and eventually filed suit in the Brown County Circuit Court, alleging that Cedarapids sold it a defective product that caused over $400,000 in damages, including repair costs, lost revenue, and prejudgment interest. Daanen originally alleged claims against Cedarapids based in both contract and tort law, but has since dropped the contract claims so that only tort claims of common law negligence and strict liability remain. Daanen has not alleged that the defective pitman caused personal injury or damage to property other than the pitman.

¶7 Pursuant to 28 U.S.C. § 1332, and based on diversity of citizenship, Cedarapids removed the case to the United States District Court for the Eastern District of Wisconsin, John W. Reynolds, J., presiding. Cedarapids then filed a motion for summary judgment, arguing that under Wisconsin law Daanen could not recover in tort for solely "economic losses." The federal district court recognized that this court has not yet considered whether to apply the economic loss doctrine in the absence of privity, and that other courts have disagreed as to whether this court would apply the doctrine when squarely confronted with the issue. 2 The district court, postulating as to how this court would determine the issue, granted Cedarapids' motion for summary judgment and concluded that the "economic loss" doctrine precludes the plaintiff's tort claims, even in the absence of privity between the plaintiff and defendant. Daanen appealed this ruling to the United States Court of Appeals for the Seventh Circuit, which then certified to this court the issue now before us. We answer the certified question in the affirmative: even in the absence of privity, the economic loss doctrine bars a remote commercial purchaser from recovering economic losses from a manufacturer under tort theories of strict liability and negligence.

¶8 The question whether a complaint has stated a claim for relief is a pure question of law, which we review de novo. See Sunnyslope Grading, Inc. v. Miller, 148 Wis.2d 910, 915, 437 N.W.2d 213 (1989); First National Leasing Corp. v. Madison, 81 Wis.2d 205, 208, 260 N.W.2d 251 (1977). This court is not bound by a federal court's interpretation of Wisconsin law. See State v. Webster, 114 Wis.2d 418, 426 n. 4, 338 N.W.2d 474 (1983).

¶9 The economic loss doctrine is a judicially created doctrine providing that a commercial purchaser of a product cannot recover from a manufacturer, under the tort theories of negligence or strict products liability damages that are solely "economic" in nature. See Sunnyslope, 148 Wis.2d at 921, 437 N.W.2d 213. As other courts have recognized, defining "economic loss" is difficult. See Stoughton Trailers, Inc. v. Henkel Corp., 965 F.Supp. 1227, 1230 (W.D.Wis.1997). 3 Economic loss is generally defined as 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." Northridge Co. v. W.R. Grace & Co., 162 Wis.2d 918, 925-26, 471 N.W.2d 179 (1991). It includes both direct economic loss and consequential economic loss. See Stoughton Trailers, 965 F.Supp. at 1231; Northridge Co., 162 Wis.2d at 926, 471 N.W.2d 179; see also 1 James J. White & Robert S. Summers, Handbook of the Law Under the Uniform Commercial Code §§ 11-5, 11-6 (4th ed.1995). The former is loss in value of the product itself; the latter is all other economic losses attributable to the product defect. See Steven R. Swanson, The Citadel Survives a Naval Bombardment: A Policy Analysis of the Economic Loss Doctrine, 12 Tul. Mar. L.J. 135, 140 (1987). In Northridge, we explained:

Direct economic loss may be said to encompass damage based on insufficient product value; thus, direct economic loss may be 'out of pocket'--the difference in value between what is given and received--or 'loss of bargain'--the difference between the value of what is received and its value as represented.... Consequential economic loss includes all indirect loss, such as loss of profits resulting from inability to make use of the defective product.

Northridge, 162 Wis.2d at 926, 471 N.W.2d 179 (citing Note, Economic Loss in Products Liability Jurisprudence, 66 Colum. L.Rev. 917, 918 (1966)).

¶10 The economic loss doctrine, however, does not bar a commercial purchaser's claims based on personal injury or damage to property other than the product, or economic loss claims that are alleged in combination with noneconomic losses. See Northridge, 162 Wis.2d at 937, 471 N.W.2d 179; see also Stoughton Trailers, 965 F.Supp. at 1231; Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 61 Ill.Dec. 746, 753, 435 N.E.2d 443, 449 (1982). In short, economic loss is damage to a product itself or monetary loss caused by the defective product, which does not cause personal injury or damage to other property.

¶11 This court first adopted the economic loss doctrine in Sunnyslope, 148 Wis.2d 910, 437 N.W.2d 213. In Sunnyslope, the plaintiff, a commercial contractor, purchased a backhoe directly from the defendant manufacturer. When the backhoe failed to perform properly, the plaintiff brought a tort action against the manufacturer for damages including the cost of replacement parts, labor charges, and lost profits. See Sunnyslope, 148 Wis.2d at 914-15, 437 N.W.2d 213. At the time of the sale of the backhoe, the manufacturer extended to the plaintiff a written warranty, limiting the manufacturer's liability for defects in the backhoe to repair and replacement costs for a set time period and disclaiming all other liability for direct, incidental, and consequential damages. See id. at 913-14, 437 N.W.2d 213. This court denied the plaintiff relief, holding that "a commercial purchaser of a product cannot recover solely economic losses from the manufacturer under negligence or strict liability theories, particularly ... where the warranty given by the manufacturer specifically precludes the recovery of such damages." Id. at 921, 437 N.W.2d 213.

¶12 As we recognized in Northridge, our holding in Sunnyslope was limited to the question there presented: "whether damages to the product itself and economic losses flowing therefrom are recoverable in tort when a warranty exists in a commercial setting...." ...." Northridge, 162 Wis.2d at 927, 471 N.W.2d 179 (citing Sunnyslope, 148 Wis.2d at 911, 437 N.W.2d 213)(emphasis added). One significant issue left unanswered in Sunnyslope is that presented here: whether the economic loss doctrine applies where no privity of contract exists between the manufacturer and remote...

To continue reading

Request your trial
161 cases
  • State Farm Mut. Auto. Ins. Co. v. Ford Motor Co.
    • United States
    • Wisconsin Supreme Court
    • 4 Mayo 1999
    ...for "Economic Loss" DamagesTort or Contract?, 114 U. Pa. L.Rev. 539, 541 (1966)). See also, Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis.2d 395, 401, 573 N.W.2d 842 (1998). Economic loss has also been defined as "damages for inadequate value, costs of repair and replacement of the de......
  • Menges v. Depuy Motech, Inc.
    • United States
    • U.S. District Court — Northern District of Indiana
    • 11 Junio 1999
    ...v. Schubert, Schroeder & Assoc., Inc., 72 Wis.2d 38, 240 N.W.2d 124 (1976), rev'd on other grounds by Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis.2d 395, 573 N.W.2d 842 (1998). Privity of contract is the relationship that exists between two contracting parties. Id. at 41, 240 N.W.2d......
  • Stuart v. Weisflog's Showroom Gallery
    • United States
    • Wisconsin Supreme Court
    • 10 Julio 2008
    ...does not work for the general purposes for which it was manufactured and sold." Id., ¶ 29 (quoting Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis.2d 395, 400-01, 573 N.W.2d 842 (1998)). Economic damages include damages to the product itself and to other components in an integrated syst......
  • Kaloti Enterprises, Inc. v. Kellogg Sales Co.
    • United States
    • Wisconsin Supreme Court
    • 8 Julio 2005
    ...First, federal cases applying Wisconsin law provide persuasive, but not precedential, authority. See Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis. 2d 395, 400, 573 N.W.2d 842 (1998) ("This court is not bound by a federal court's interpretation of Wisconsin law."). In the 1977 Guyer d......
  • Request a trial to view additional results
2 books & journal articles
  • The Economic Loss Rule in Kansas and Its Impact on Construction Cases
    • United States
    • Kansas Bar Association KBA Bar Journal No. 74-6, June 2005
    • Invalid date
    ...Lens Plan Inc. v. Polaris Leasing Corp . , 234 Kan. 742, 755, 674 P.2d 887 (1984). 7. Daanen & Janssen Inc. v. Cedar Rapids Inc . , 573 N.W.2d 842, 846 (Wisc. 1998). 8. Kailin v. Armstrong , 643 N.W.2d 132, 144 (Wisc. App. 2002). 9. Daanen & Janssen , 573 N.W.2d at 846-47; Mt. Lebanon Perso......
  • Narrow fraud-in-the-inducement exception adopted.
    • United States
    • Wisconsin Law Journal No. 2003, November 2003
    • 11 Junio 2003
    ...though it is not in contractual privity with the party allegedly engaging in fraud. In Daanen & Janssen, Inc. v. Cedarapids, Inc., 216 Wis.2d 395, 573 N.W.2d 842 (1998), the court held that the doctrine bars a party in the distributive chain from recovering losses in tort from another p......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT